Attached files
| file | filename |
|---|---|
| EXCEL - IDEA: XBRL DOCUMENT - Toys R Us Property Co II, LLC | Financial_Report.xls |
| EX-32.1 - CERTIFICATION OF P.E.O AND P.F.O. PURSUANT TO SECTION 906 - Toys R Us Property Co II, LLC | truprop210292011-exx321.htm |
| EX-31.1 - CERTIFICATION OF P.E.O AND P.F.O. PURSUANT TO SECTION 302 - Toys R Us Property Co II, LLC | truprop210292011-exx311.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________________
FORM 10-Q
_________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 29, 2011
Commission file number 333-168515
_________________________________
Toys “R” Us Property Company II, LLC
(Exact name of registrant as specified in its charter)
_________________________________
Delaware | 37-1512919 | |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification Number) | |
One Geoffrey Way Wayne, New Jersey | 07470 | |
(Address of principal executive offices) | (Zip code) | |
(973) 617-3500
(Registrant’s telephone number, including area code)
_________________________________
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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | ¨ |
Non-accelerated filer | x (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
As of December 13, 2011, all of our outstanding membership interests were privately held by our sole member, Giraffe Junior Holdings, LLC.
TOYS “R” US PROPERTY COMPANY II, LLC
TABLE OF CONTENTS
PAGE | |
PART 1 – FINANCIAL INFORMATION
Item 1. | Financial Statements |
TOYS “R” US PROPERTY COMPANY II, LLC
CONDENSED BALANCE SHEETS
(Unaudited)
(In thousands) | October 29, 2011 | January 29, 2011 | ||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash | $ | 25,608 | $ | 10,419 | ||||
Due from affiliate, net | 5,488 | 4,091 | ||||||
Prepaid expenses | 1,720 | 1,446 | ||||||
Total current assets | 32,816 | 15,956 | ||||||
Real Estate, Net: | ||||||||
Land | 169,937 | 169,937 | ||||||
Buildings, net | 167,731 | 171,935 | ||||||
Leasehold improvements, net | 47,868 | 52,827 | ||||||
Total real estate, net | 385,536 | 394,699 | ||||||
Straight-line rent receivable from affiliate | 54,463 | 44,493 | ||||||
Debt issuance costs | 21,958 | 24,674 | ||||||
Total Assets | $ | 494,773 | $ | 479,822 | ||||
LIABILITIES AND MEMBER’S DEFICIT | ||||||||
Current Liabilities: | ||||||||
Accrued interest | $ | 25,425 | $ | 10,158 | ||||
Real estate taxes payable | 6,702 | 5,425 | ||||||
Deferred related party revenue | 486 | 486 | ||||||
Other current liabilities | 409 | 142 | ||||||
Total current liabilities | 33,022 | 16,211 | ||||||
Long-term debt | 716,583 | 715,821 | ||||||
Deferred third party rent liabilities | 14,269 | 13,800 | ||||||
Member's deficit | (269,101 | ) | (266,010 | ) | ||||
Total Liabilities and Member's Deficit | $ | 494,773 | $ | 479,822 | ||||
See accompanying notes to the Condensed Financial Statements.
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TOYS “R” US PROPERTY COMPANY II, LLC
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
(In thousands) | October 29, 2011 | October 30, 2010 | October 29, 2011 | October 30, 2010 | ||||||||||||
Rental revenues: | ||||||||||||||||
Base rents | $ | 26,452 | $ | 26,502 | $ | 80,059 | $ | 80,262 | ||||||||
Tenant reimbursements | 3,412 | 3,275 | 10,309 | 9,821 | ||||||||||||
Total revenues | 29,864 | 29,777 | 90,368 | 90,083 | ||||||||||||
Depreciation | 3,120 | 3,022 | 9,163 | 9,111 | ||||||||||||
Rental expense | 816 | 1,022 | 2,446 | 3,078 | ||||||||||||
Common area maintenance expenses | 3,412 | 3,275 | 10,309 | 9,821 | ||||||||||||
Other operating expenses | 441 | 423 | 1,304 | 1,258 | ||||||||||||
Total operating expenses | 7,789 | 7,742 | 23,222 | 23,268 | ||||||||||||
Operating earnings | 22,075 | 22,035 | 67,146 | 66,815 | ||||||||||||
Interest expense | 16,484 | 16,448 | 49,557 | 49,462 | ||||||||||||
Net earnings | $ | 5,591 | $ | 5,587 | $ | 17,589 | $ | 17,353 | ||||||||
See accompanying notes to the Condensed Financial Statements.
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TOYS “R” US PROPERTY COMPANY II, LLC
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
39 Weeks Ended | ||||||||
(In thousands) | October 29, 2011 | October 30, 2010 | ||||||
Cash Flows from Operating Activities: | ||||||||
Net earnings | $ | 17,589 | $ | 17,353 | ||||
Adjustments to reconcile Net earnings to net cash provided by operating activities: | ||||||||
Depreciation | 9,163 | 9,111 | ||||||
Amortization of debt issuance costs | 2,716 | 2,634 | ||||||
Amortization of original issue discount | 762 | 728 | ||||||
Changes in operating assets and liabilities: | ||||||||
Due from affiliate, net | (1,397 | ) | (1,412 | ) | ||||
Prepaid expenses | (274 | ) | (454 | ) | ||||
Straight-line rent receivable from affiliate and Deferred third party rent liabilities | (9,501 | ) | (9,306 | ) | ||||
Accrued interest, Real estate taxes payable and Other current liabilities | 16,811 | 13,498 | ||||||
Net cash provided by operating activities | 35,869 | 32,152 | ||||||
Cash Flows from Financing Activities: | ||||||||
Distributions | (20,680 | ) | (20,979 | ) | ||||
Capital contributions | — | 1,238 | ||||||
Capitalized debt issuance/extension costs | — | (332 | ) | |||||
Net cash used in financing activities | (20,680 | ) | (20,073 | ) | ||||
Cash: | ||||||||
Net increase during period | 15,189 | 12,079 | ||||||
Cash at beginning of period | 10,419 | 13,741 | ||||||
Cash at end of period | $ | 25,608 | $ | 25,820 | ||||
Supplemental Disclosure of Cash Flow Information | ||||||||
Interest paid | $ | 30,813 | $ | 32,696 | ||||
Non-Cash Financing Information | ||||||||
Adjustment to the carrying value of net assets previously acquired | $ | — | $ | (2,166 | ) | |||
Contribution of properties, net | $ | — | $ | 784 | ||||
See accompanying notes to the Condensed Financial Statements.
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TOYS “R” US PROPERTY COMPANY II, LLC
CONDENSED STATEMENTS OF CHANGES IN MEMBER’S DEFICIT
(Unaudited)
(In thousands) | Member's Deficit | |||
Balance, January 30, 2010 | $ | (260,666 | ) | |
Net earnings for the period | 17,353 | |||
Capital contributions | 1,238 | |||
Contribution of properties, net | 784 | |||
Adjustment to the carrying value of net assets previously acquired | (2,166 | ) | ||
Distributions | (20,979 | ) | ||
Balance, October 30, 2010 | $ | (264,436 | ) | |
Balance, January 29, 2011 | $ | (266,010 | ) | |
Net earnings for the period | 17,589 | |||
Distributions | (20,680 | ) | ||
Balance, October 29, 2011 | (269,101 | ) | ||
See accompanying notes to the Condensed Financial Statements.
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TOYS “R” US PROPERTY COMPANY II, LLC
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of presentation
As used herein, the “Company,” “we,” “us,” or “our” means Toys “R” Us Property Company II, LLC (“TRU Propco II”), except as expressly indicated or unless the context otherwise requires. TRU Propco II was formed on July 21, 2005 as part of a legal reorganization of the businesses of Toys “R” Us, Inc. (“TRU”). TRU, through various subsidiaries, operates or licenses Toys “R” Us and Babies “R” Us stores in the United States and foreign countries and jurisdictions. We are ultimately owned by TRU through our indirect parent, Toys “R” Us-Delaware, Inc. (“Toys-Delaware”), to whom we lease or sublease substantially all of our properties and from whom we derive substantially all of our revenues and cash flows.
As a result of the reorganization, the Company received, as contributions from Toys-Delaware and other affiliates, certain properties which we now lease to Toys-Delaware. As the reorganization was between entities under common control, the net assets transferred were recorded at their carrying value.
The Condensed Balance Sheets as of October 29, 2011 and January 29, 2011, the Condensed Statements of Operations for the thirteen and thirty-nine weeks ended October 29, 2011 and October 30, 2010, the Condensed Statements of Cash Flows and the Condensed Statements of Changes in Member’s Deficit for the thirty-nine weeks ended October 29, 2011 and October 30, 2010, have been prepared by us in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim reporting, and in accordance with the requirements of this Quarterly Report on Form 10-Q. Our interim Condensed Financial Statements are unaudited and are subject to year-end adjustments. In the opinion of management, the financial statements include all known adjustments (which consist primarily of normal, recurring accruals, estimates and assumptions that impact the financial statements) necessary to present fairly the financial position at the balance sheet dates and the results of operations for the thirteen and thirty-nine weeks then ended. The Condensed Balance Sheet at January 29, 2011, presented herein, has been derived from our audited balance sheet included in our Annual Report on Form 10-K for the fiscal year ended January 29, 2011, but does not include all disclosures required by GAAP. These financial statements should be read in conjunction with the financial statements and footnotes thereto included within our Annual Report on Form 10-K for the fiscal year ended January 29, 2011. The results of operations for the thirteen and thirty-nine weeks ended October 29, 2011 and October 30, 2010 are not necessarily indicative of operating results for the full year.
Prior Period Corrections
We have corrected the Condensed Balance Sheet previously reported as of October 30, 2010 to reflect certain related party reimbursements and third party liabilities, since we are the primary obligor and no legal right of offset existed. As such, although not presented herein, we have increased Current assets and liabilities by approximately $7 million to correctly present these immaterial items. The items included primarily represent third party rent, property taxes and certain operating expenses which are paid directly by Toys-Delaware to the respective third parties. The correction had no effect on our previously reported Results of Operations, Member’s Deficit and no net effect on Cash Flows.
In addition, in the second quarter of fiscal 2010, we recorded an approximate $3 million adjustment to increase Deferred rent liabilities on our Condensed Balance Sheet to correct a cumulative prior period straight-line lease accounting error. A portion of this correction related to the understatement of straight-line lease expense that occurred prior to the fiscal 2005 reorganization transactions when the related assets were sold to us from affiliates. As a result, the carrying value of the net assets sold to us
during these transactions was overstated by approximately $2 million and was recorded as an increase in Member’s Deficit.
The remaining portion of this correction of approximately $1 million increased Rental expense on the Condensed Statement
of Operations for the thirty-nine weeks ended October 30, 2010. In addition, in connection with our master lease agreement, a corresponding correcting adjustment was recorded of approximately $1 million to increase Base rents for the thirty-nine weeks ended October 30, 2010 on the Condensed Statement of Operations and Straight-line rent receivable from affiliate on the Condensed Balance Sheet for the period subsequent to the fiscal 2005 reorganization. Management concluded that this correction did not have a material impact on the financial statements for the thirty-nine weeks ended October 30, 2010 or any previously reported financial statements.
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2. Real estate, net
(In thousands) | October 29, 2011 | January 29, 2011 | ||||||
Land | $ | 169,937 | $ | 169,937 | ||||
Buildings | 273,285 | 273,285 | ||||||
Leasehold improvements | 132,173 | 132,173 | ||||||
575,395 | 575,395 | |||||||
Less: accumulated depreciation | (189,859 | ) | (180,696 | ) | ||||
Total | $ | 385,536 | $ | 394,699 | ||||
During the second quarter of fiscal 2010, we distributed property to our indirect parent, Toys-Delaware, in exchange for a contribution of properties. These transactions resulted in a Contribution of properties, net of approximately $1 million which has been recorded in our Condensed Statement of Changes in Member's Deficit as of October 30, 2010.
3. Long-term debt
As of October 29, 2011 and January 29, 2011, the carrying value of our debt was $717 million and $716 million, respectively, with fair values of approximately $769 million and $791 million, respectively. The fair value of our long-term debt was estimated based on a quoted market price and other pertinent information available to management as of the end of the respective periods. Refer to the Annual Report on Form 10-K for further details on indebtedness.
4 . Member’s deficit
Giraffe Junior Holdings, LLC, an indirect wholly-owned subsidiary of TRU, is the direct owner of 100% of our limited liability company interests. We evaluate our cash balances on an ongoing basis and periodically distribute cash to our parent companies. During the thirty-nine weeks ended October 29, 2011, we made cash distributions of approximately $18 million and $3 million in dividends and return of capital, respectively. During the thirty-nine weeks ended October 30, 2010, we made cash distributions of approximately $17 million and $4 million in dividends and return of capital, respectively.
During the thirty-nine weeks ended October 30, 2010, we received a capital contribution of approximately $1 million from Giraffe Junior Holdings, LLC.
During the thirty-nine weeks ended October 30, 2010, we recorded an approximate $2 million Adjustment to the carrying value of net assets previously acquired on the Condensed Statement of Changes in Member's Deficit to correct the carrying value of net assets contributed to us as part of the fiscal 2005 reorganization transactions. Refer to Note 1 entitled "Basis of Presentation" for further details.
Additionally, during the thirty-nine weeks ended October 30, 2010, we received a contribution of properties of approximately $1 million from our indirect parent, Toys-Delaware. Refer to Note 2 entitled "Real estate, net" for further details.
5. Related party transactions
Rental Revenues
Our rental revenues are derived from payments received under the leasing arrangements we have entered into with Toys-Delaware. The master lease agreement provides for Toys-Delaware to reimburse us for property related costs including, among others, real estate taxes and common area maintenance charges. Some of these costs are directly paid by Toys-Delaware and are recorded as both an expense and a tenant reimbursement. During the thirteen weeks ended October 29, 2011 and October 30, 2010, we earned related party Base rent revenues of approximately $26 million and $27 million, respectively. During each of the thirty-nine weeks ended October 29, 2011 and October 30, 2010, we earned related party Base rent revenues of $80 million. In addition, we recorded Tenant reimbursements of approximately $3 million under our leasing arrangements with Toys-Delaware during each of the thirteen weeks ended October 29, 2011 and October 30, 2010. During each of the thirty-nine weeks ended October 29, 2011 and October 30, 2010, we recorded Tenant reimbursements of approximately $10 million.
Management Service Fees
Toys-Delaware provides a majority of the centralized corporate functions, including accounting, human resources, legal, tax and treasury services to TRU, other affiliates and us under a Domestic Services Agreement (“Agreement”). The costs are based on a formula for each affiliate, as defined in the Agreement, and are recorded in Other operating expenses in the Condensed Statements of Operations. During each of the thirteen weeks ended October 29, 2011 and October 30, 2010, the amounts
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charged to us for these services were less than $1 million. During each of the thirty-nine weeks ended October 29, 2011 and October 30, 2010, the amounts charged to us for these services were approximately $1 million.
6. Due from affiliate, net
As of October 29, 2011 and January 29, 2011, Due from affiliate, net of $5 million and $4 million, respectively, primarily represents real estate taxes, certain property reimbursements and base rents owed to us by Toys-Delaware.
7. Recent Accounting Pronouncements
In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“ASU 2011-04”). The amendments in this ASU generally represent clarification of Topic 820, but also include instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements has changed. This update results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP and International Financial Reporting Standards (“IFRS”). The amendments are effective for interim and annual periods beginning after December 15, 2011 and are to be applied prospectively. Early application is not permitted. We do not expect the adoption of ASU 2011-04 will have a material impact on our Condensed Financial Statements.
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Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
As used herein the “Company,” “we,” “us,” or “our” means Toys “R” Us Property Company II, LLC (“TRU Propco II”), except as expressly indicated or unless the content otherwise requires. The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help facilitate an understanding of our financial condition and our historical results of operations for the periods presented. This MD&A should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended January 29, 2011 and Condensed Financial Statements and the accompanying notes thereto, and contains forward-looking statements that involve risks and uncertainties. See “Forward-Looking Statements” below.
Our Business
We are a special purpose entity, owned indirectly by Toys “R” Us, Inc. (“TRU”) through Toys “R” Us – Delaware, Inc. (“Toys-Delaware”). We own fee and ground leasehold interests in 129 properties in various retail markets throughout the United States. Under an operating company/property company structure, we lease these properties on a triple-net basis, to Toys-Delaware, the operating entity for all of TRU’s North American businesses. Substantially all of our revenues and cash flows are derived from payments from Toys-Delaware under the Amended and Restated Master Lease Agreement (the “TRU Propco II Master Lease”). For quarterly financial statements and other information about our master tenant, Toys-Delaware, see Exhibit 99.1 to this report.
Results of Operations
Net Earnings
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||||||||||||||||
($ In thousands) | October 29, 2011 | October 30, 2010 | $ Change | % Change | October 29, 2011 | October 30, 2010 | $ Change | % Change | ||||||||||||||||||||||
Net earnings | $ | 5,591 | $ | 5,587 | $ | 4 | 0.1 | % | $ | 17,589 | $ | 17,353 | $ | 236 | 1.4 | % | ||||||||||||||
Net earnings had a nominal increase for the thirteen and thirty-nine weeks ended October 29, 2011, compared to the same periods last year.
Total Revenues
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||||||||||||||||
($ In thousands) | October 29, 2011 | October 30, 2010 | $ Change | % Change | October 29, 2011 | October 30, 2010 | $ Change | % Change | ||||||||||||||||||||||
Total revenues | $ | 29,864 | $ | 29,777 | $ | 87 | 0.3 | % | $ | 90,368 | $ | 90,083 | $ | 285 | 0.3 | % | ||||||||||||||
Total revenues had a nominal increase for the thirteen and thirty-nine weeks ended October 29, 2011, compared to the same periods last year.
Depreciation
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||||||||||||||||
($ In thousands) | October 29, 2011 | October 30, 2010 | $ Change | % Change | October 29, 2011 | October 30, 2010 | $ Change | % Change | ||||||||||||||||||||||
Depreciation | $ | 3,120 | $ | 3,022 | $ | 98 | 3.2 | % | $ | 9,163 | $ | 9,111 | $ | 52 | 0.6 | % | ||||||||||||||
Depreciation had a nominal increase for the thirteen and thirty-nine weeks ended October 29, 2011, compared to the same periods last year.
Rental Expense
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||||||||||||||||
($ In thousands) | October 29, 2011 | October 30, 2010 | $ Change | % Change | October 29, 2011 | October 30, 2010 | $ Change | % Change | ||||||||||||||||||||||
Rental expense | $ | 816 | $ | 1,022 | $ | (206 | ) | (20.2 | )% | $ | 2,446 | $ | 3,078 | $ | (632 | ) | (20.5 | )% | ||||||||||||
Rental expense decreased by $0.2 million, or 20.2%, to $0.8 million for the thirteen weeks ended October 29, 2011, compared to $1.0 million for the thirteen weeks ended October 30, 2010, and decreased by $0.7 million, or 20.5%, to $2.4 million for the thirty-nine weeks ended October 29, 2011, compared to $3.1 million for the thirty-nine weeks ended October 30, 2010. The
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decrease for the thirty-nine weeks ended October 29, 2011 was primarily due to a non-cash cumulative straight-line lease accounting correction recorded in the second quarter of fiscal 2010.
Common Area Maintenance Expenses
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||||||||||||||||
($ In thousands) | October 29, 2011 | October 30, 2010 | $ Change | % Change | October 29, 2011 | October 30, 2010 | $ Change | % Change | ||||||||||||||||||||||
Common area maintenance expenses | $ | 3,412 | $ | 3,275 | $ | 137 | 4.2 | % | $ | 10,309 | $ | 9,821 | $ | 488 | 5.0 | % | ||||||||||||||
Common area maintenance expenses increased by $0.1 million, or 4.2%, to $3.4 million for the thirteen weeks ended October 29, 2011, compared to $3.3 million for the thirteen weeks ended October 30, 2010, and increased by $0.5 million, or 5.0%, to $10.3 million for the thirty-nine weeks ended October 29, 2011, compared to $9.8 million for the thirty-nine weeks ended October 30, 2010. These expenses are fully reimbursed by our tenant under the TRU Propco II Master Lease, and are reflected in Base rents, which is a component of Total revenues.
Other Operating Expenses
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||||||||||||||||
($ In thousands) | October 29, 2011 | October 30, 2010 | $ Change | % Change | October 29, 2011 | October 30, 2010 | $ Change | % Change | ||||||||||||||||||||||
Other operating expenses | $ | 441 | $ | 423 | $ | 18 | 4.3 | % | $ | 1,304 | $ | 1,258 | $ | 46 | 3.7 | % | ||||||||||||||
Other operating expenses had a nominal increase for the thirteen and thirty-nine weeks ended October 29, 2011, compared to the same periods last year.
Interest Expense
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||||||||||||||||
($ In thousands) | October 29, 2011 | October 30, 2010 | $ Change | % Change | October 29, 2011 | October 30, 2010 | $ Change | % Change | ||||||||||||||||||||||
Interest expense | $ | 16,484 | $ | 16,448 | $ | 36 | 0.2 | % | $ | 49,557 | $ | 49,462 | $ | 95 | 0.2 | % | ||||||||||||||
Interest expense had a nominal increase for the thirteen and thirty-nine weeks ended October 29, 2011, compared to the same periods last year.
Liquidity and Capital Resources
Overview
As of October 29, 2011, we were in compliance with all of our covenants related to the 8.50% senior secured notes due fiscal 2017 (the “Secured Notes”).
Our largest source of operating cash flows is cash collections from our lessee, Toys-Delaware. In general, we utilize our cash to service debt, pay normal operating costs and at the discretion of our sole member, based on the recommendation of our management, and as permitted by the indenture governing the Secured Notes, declare and pay dividends or make distributions. We have been able to meet our operating cash needs principally by using cash on hand and cash flows from operations and we believe that cash generated from operations along with existing cash will be sufficient to fund expected cash flow requirements for the next twelve months.
Cash Flows
39 Weeks Ended | ||||||||||||
(In thousands) | October 29, 2011 | October 30, 2010 | Change | |||||||||
Net cash provided by operating activities | $ | 35,869 | $ | 32,152 | $ | 3,717 | ||||||
Net cash used in financing activities | (20,680 | ) | (20,073 | ) | (607 | ) | ||||||
Net increase during period in cash | $ | 15,189 | $ | 12,079 | $ | 3,110 | ||||||
Cash Flows Provided by Operating Activities
During the thirty-nine weeks ended October 29, 2011, net cash provided by operating activities was $35.9 million compared to
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$32.2 million the same period last year. The increase in net cash provided by operating activities was due primarily to two fiscal 2010 items that did not recur in the current year. The first half of fiscal 2010 included 11 days of incremental interest payments totaling $1.9 million as well as $1.3 million in payments related to costs associated with the issuance of the Secured Notes in fiscal 2009.
Cash Flows Used in Financing Activities
During the thirty-nine weeks ended October 29, 2011, net cash used in financing activities was $20.7 million compared to $20.1 million for the same period last year. The increase in net cash used in financing activities was primarily due to Capital contributions of $1.2 million, which did not recur in the current year. This was offset by capitalized debt issuance costs incurred in fiscal 2010 related to costs associated with the issuance of the Secured Notes in fiscal 2009 and a decrease in distributions.
Debt
Refer to the Annual Report on Form 10-K and Note 3 to the Condensed Financial Statements entitled “Long-term debt” for further details regarding our debt.
Contractual Obligations and Commitments
Our contractual obligations consist mainly of payments related to Long-term debt and related interest and operating leases related to real estate used in the operation of our business. Refer to the “Contractual Obligations and Commitments” section of the Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended January 29, 2011, for details on our contractual obligations and commitments.
Critical Accounting Policies
Our Condensed Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosures of contingent assets and liabilities as of the date of the financial statements and during the applicable periods. We base these estimates on historical experience and on other factors that we believe are reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions and could have a material impact on our Condensed Financial Statements. Refer to the Annual Report on Form 10-K for the fiscal year ended January 29, 2011, for a discussion of critical accounting policies.
Recently Adopted Accounting Pronouncements
None.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. All statements herein or therein 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, future financial or operational performance, anticipated cost savings, results of restructurings, cash flows generated from operating activities, anticipated developments, future financings, targets and future occurrences and trends.
These statements are subject to risks, uncertainties, and other factors, including, among others, competition in the retail industry, seasonality of Toys-Delaware’s business, changes in consumer preferences and consumer spending patterns, general economic conditions in the United States and other countries in which Toys-Delaware conducts its business, Toys-Delaware’s ability to implement its strategy, our, Toys-Delaware’s and TRU’s respective substantial levels of indebtedness and related debt-service obligations and the covenants in their and our respective debt agreements, availability of adequate financing to us, Toys-Delaware and TRU, Toys-Delaware’s dependence on key vendors of merchandise, international events affecting the delivery of toys and other products to Toys-Delaware’s stores, and such risks, uncertainties and factors set forth under Item 1A entitled “RISK FACTORS” of our Annual Report on Form 10-K filed on April 29, 2011 and in our reports and documents filed with the United States Securities and Exchange Commission (which reports and documents should be read in conjunction with this Quarterly Report on Form 10-Q). We believe that all forward-looking statements are based on reasonable assumptions when made; however, we caution that it is impossible to predict actual results or outcomes or the effects of risks, uncertainties or other factors on anticipated results or outcomes and that, accordingly, one should not place undue reliance on these statements. Forward-looking statements speak only as of the date they were made, and we undertake no obligation to update
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these statements in light of subsequent events or developments. Actual results and outcomes may differ materially from anticipated results or outcomes discussed in any forward-looking statement.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
There has been no material change in our exposure to market risk during the thirteen and thirty-nine weeks ended October 29, 2011. For a discussion of our exposure to market risk, refer to Item 7A entitled “QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK” in our Annual Report on Form 10-K for the fiscal year ended January 29, 2011.
Item 4. | Controls and Procedures |
Disclosure Controls and Procedures
Disclosure controls and procedures are the controls and other procedures that are designed to provide reasonable assurance that information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including the principal executive and principal financial officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
We have evaluated, under the supervision and with the participation of our management, including our principal executive and principal financial officer, the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act as of the end of the period covered by this report.
Based on that evaluation, our principal executive and principal financial officer has concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q to accomplish their objectives at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the third quarter of fiscal 2011 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. | Legal Proceedings |
Although we do not currently have material legal proceedings pending against us, in the future, we may be involved in various lawsuits, claims and proceedings incident to the ordinary course of business. The results of litigation are inherently unpredictable. Any claims against us, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of management time and result in diversion of significant resources. The results of these lawsuits, claims and proceedings cannot be predicted with certainty.
Item 1A. | Risk Factors |
As of the date of this report, there have been no material changes to the information related to Item 1A entitled “RISK FACTORS” disclosed in our Annual Report on Form 10-K for the fiscal year ended January 29, 2011.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None.
Item 3. | Defaults Upon Senior Securities |
None.
Item 4. | (Removed and Reserved) |
Item 5. | Other Information |
None.
Item 6. | Exhibits |
See the Index to Exhibits immediately following the signature page hereto, which Index to Exhibits is incorporated herein by reference.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
TOYS “R” US PROPERTY COMPANY II, LLC | ||
(Registrant) | ||
Date: December 13, 2011 | /s/ F. Clay Creasey, Jr. | |
F. Clay Creasey, Jr. | ||
President and Chief Financial Officer | ||
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INDEX TO EXHIBITS
The following is a list of all exhibits filed or furnished as part of this report:
Exhibit No. | Description | |
3.1 | Amended and Restated Certificate of Formation of Toys “R” Us Property Company II, LLC (filed as Exhibit 3.1 to Registrant’s Form S-4 registration statement, filed on August 4, 2010 and incorporated herein by reference). | |
3.2 | Second Amended and Restated Limited Liability Company Agreement of Toys “R” Us Property Company II, LLC (filed as Exhibit 3.2 to the Registrant’s Form S-4 registration statement, filed on August 4, 2010 and incorporated herein by reference). | |
31.1 | Certification of Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a – 14(a) and Rule 15d – 14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
99.1 | Toys “R” Us – Delaware, Inc. financial statements for the thirteen and thirty-nine weeks ended October 29, 2011 (filed as Exhibit 99.1 to the Form 8-K filed by Toys “R” Us, Inc. on December 13, 2011 and incorporated herein by reference). | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Labels Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
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