TOYS“R”US, INC. REPORTS RESULTS FOR FOURTH QUARTER AND FULL YEAR OF FISCAL 2013


WAYNE, NJ (March 26, 2014) - Toys“R”Us, Inc. today reported financial results for the fourth quarter and full year of fiscal 2013 ended February 1, 2014.  For the fourth quarter, the company reported net sales of $5.3 billion and Adjusted EBITDA1 of $505 million.

Antonio Urcelay, Chairman of the Board of Directors and Chief Executive Officer, Toys“R”Us, Inc., stated, “It was a challenging year, with declines in both our Domestic and International segments.  The U.S. business experienced the more significant downturn, primarily due to a decrease in net sales, margin pressure and one-time items, including the write-down of excess and obsolete inventory as we take the necessary and prudent steps to improve the business.”

Mr. Urcelay continued, “Over the past several months, the team has been focused on developing our strategic plan, which we strongly believe will address foundational issues needed to stabilize the business over the short-term, while allowing us to implement new initiatives to put the company on track for profitable growth in the future.  At the same time, we accelerated our expansion in China, where business has continued to be strong.”

“The company ended the year with a strong liquidity position of approximately $1.8 billion and reduced our total long term debt by $322 million to $5.0 billion.  In addition, we are pleased that last week we successfully refinanced our $1.85 billion senior secured revolving credit facility, a key component of our capital structure.  The execution of this transaction ensures our ability to appropriately fund the working capital needs of our operations at rates that are significantly lower than the prior revolving credit facility.”   

“We are also pleased that the 2014 fiscal year has started off well, with a 3.5% comparable store net sales increase in the U.S. and a 0.2% comparable store net sales increase in our International segment through the first seven fiscal weeks.  The U.S. comparable store net sales results are largely attributable to the learning, juvenile and entertainment categories which were impacted by strong sales of hot movie-related products, both in-store and online, and an enhanced e-commerce shipping offer.”

Fourth Quarter Fiscal 2013 Highlights

Full Year Fiscal 2013 Highlights

The following highlights combine the fourth quarter results being announced today with the results of the first three quarters of the fiscal year, which were previously disclosed:

Capital Spending and Depreciation

Liquidity and Debt

The company ended the year with cash and cash equivalents of $644 million and unused availability under committed lines of credit of $1.2 billion, which aggregated to approximately $1.8 billion of total liquidity.

Net cash provided by operating activities for fiscal 2013 was $144 million, a decrease of $393 million compared to the prior year amount of $537 million, primarily driven by the current year net loss.

Total long term debt, including the current portion, was $5.0 billion, a decrease of $322 million from the prior year balance of $5.3 billion, primarily due to the partial repayments of the United Kingdom and French credit facilities in conjunction with their respective refinancings, as well as current year loan amortization payments and prepayments associated with the company’s outstanding debt.

Recent Developments

On March 21, 2014, Toys“R”Us – Delaware, Inc. (“Toys“R”Us – Delaware”), a direct wholly−owned subsidiary, and certain of its subsidiaries amended and restated the credit agreement for its senior secured revolving credit facility (“ABL Facility”) in order to extend the maturity date of the facility and amend certain other provisions.  The ABL Facility as amended will continue to provide for $1.85 billion of revolving commitments, subject to certain conditions.  The ABL Facility has a final maturity date of March 21, 2019, with a springing maturity if the Toys“R”Us – Delaware term loans due fiscal 2016 and fiscal 2018, and the Toys“R”Us – Delaware secured notes due fiscal 2016 are not repaid 30 days prior to maturity.  The ABL Facility as amended bears a tiered floating interest rate of London Interbank Offered Rate plus a margin of between 1.50% and 1.75% depending on usage.

1 A detailed description and reconciliation of EBITDA and Adjusted EBITDA, and management’s reasons for using these measures, are set forth at the end of this press release.

About Toys“R”Us, Inc.

Toys“R”Us, Inc. is the world’s leading dedicated toy and juvenile products retailer, offering a differentiated shopping experience through its family of brands.  Merchandise is sold in 872 Toys“R”Us and Babies“R”Us stores in the United States and Puerto Rico, and in more than 700 international stores and over 180 licensed stores in 35 foreign countries and jurisdictions.  In addition, it exclusively operates the legendary FAO Schwarz brand and sells extraordinary toys in the brand’s flagship store on Fifth Avenue in New York City.  With its strong portfolio of e-commerce sites including Toysrus.com, Babiesrus.com, eToys.com and FAO.com, it provides shoppers with a broad online selection of distinctive toy and baby products.  Headquartered in Wayne, NJ, Toys“R”Us, Inc. employs approximately 67,000 associates annually worldwide.  The company is committed to serving its communities as a caring and reputable neighbor through programs dedicated to keeping kids safe and helping them in times of need.  Additional information about Toys“R”Us, Inc. can be found on Toysrusinc.com.

Forward-Looking Statements

All statements that are not historical facts in this press release, including statements about our beliefs or expectations, are forward-looking statements.  These statements are subject to risks, uncertainties and other factors, including, among others, the seasonality of our business, competition in the retail industry, changes in our product distribution mix and distribution channels, general economic factors in the United States and other countries in which we conduct our business, consumer spending patterns, our ability to implement our strategy including implementing initiatives for season, the availability of adequate financing, access to trade credit, changes in consumer preferences, changes in employment legislation, our dependence on key vendors for our merchandise, political and other developments associated with our international operations, costs of goods that we sell, labor costs, transportation costs, domestic and international events affecting the delivery of toys and other products to our stores, product safety issues including product recalls, the existence of adverse litigation, changes in laws that impact our business, our substantial level of indebtedness and related debt-service obligations, restrictions imposed by covenants in our debt agreements and other risks, uncertainties and factors set forth in our reports and documents filed with the Securities and Exchange Commission (which reports and documents should be read in conjunction with this press release).  In addition, we typically earn a disproportionate part of our annual operating earnings in the fourth quarter as a result of seasonal buying patterns and these buying patterns are difficult to forecast with certainty.  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 when made, and we undertake no obligation to update these statements in light of subsequent events or developments unless required by the Securities and Exchange Commission’s rules and regulations.  Actual results and outcomes may differ materially from anticipated results or outcomes discussed in forward-looking statements.

The preliminary sales figures disclosed for fiscal 2014 speak only for the periods indicated above and sales for other periods, including for the first quarter of fiscal 2014, may differ materially from the results discussed above.

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For more information please contact:

Lenders and Note Investors:

John D’Ambrosio, Manager, Corporate Treasury at 973-617-5913 or John.D’Ambrosio@toysrus.com

Media:

Kathleen Waugh, Vice President, Corporate Communications at 973-617-5888, 646-366-8823 or waughk@toysrus.com

 

Non-GAAP Disclosure of EBITDA and Adjusted EBITDA

We believe Adjusted EBITDA is useful to investors because it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry.  Investors of the Company regularly request Adjusted EBITDA as a supplemental analytical measure to, and in conjunction with, the Company’s GAAP financial data.  We understand that investors use Adjusted EBITDA, among other things, to assess our period-to-period operating performance and to gain insight into the manner in which management analyzes operating performance.

In addition, we believe that Adjusted EBITDA is useful in evaluating our operating performance compared to that of other companies in our industry because the calculation of EBITDA and Adjusted EBITDA generally eliminates the effects of financing and income taxes and the accounting effects of capital spending and acquisitions, which items may vary for different companies for reasons unrelated to overall operating performance.  We use the non-GAAP financial measures for planning and forecasting and measuring results against the forecast and in certain cases we use similar measures for bonus targets for certain of our employees.  Using several measures to evaluate the business allows us and investors to assess our relative performance against our competitors.

Although we believe that Adjusted EBITDA can make an evaluation of our operating performance more consistent because it removes items that do not reflect our core operations, other companies, even in the same industry, may define Adjusted EBITDA differently than we do.  As a result, it may be difficult to use Adjusted EBITDA or similarly named non-GAAP measures that other companies may use to compare the performance of those companies to our performance.  The Company does not, and investors should not, place undue reliance on EBITDA or Adjusted EBITDA as measures of operating performance.

A reconciliation of Net (loss) earnings attributable to Toys “R” Us, Inc. to EBITDA and Adjusted EBITDA is as follows:

(a) Represents litigation expenses recorded for certain legal matters.
(b) Represents the fees expensed to Bain Capital Partners LLC, Kohlberg Kravis Roberts & Co. L.P., and Vornado Realty Trust (collectively, the “Sponsors”) in accordance with the advisory agreement.
(c) Represents a non-cash cumulative correction of prior period accrued vacation accounting in fiscal 2013.
(d) Asset impairments primarily due to the identification of underperforming stores and the relocation of certain stores.
(e) Represents the write-off of damaged assets and repairs from a hurricane that hit the east coast of the United States and other property losses, net of insurance claims.
(f) Represents the incremental compensation expense related to one-time executive awards, the fair market value remeasurement of existing liability awards and the repurchase of awards by the Company upon termination.
(g) Represents the incremental expense related to the write-down of excess and obsolete inventory.
(h) Represents the impairment of goodwill associated with our Toys-Domestic and Toys-Japan reporting units.
(i) Represents miscellaneous other charges consisting primarily of store closure costs and restructuring which were not individually significant for separate disclosure.
(j) Adjusted EBITDA is defined as EBITDA (earnings before net interest income (expense), income tax expense (benefit), depreciation and amortization), as further adjusted to exclude the effects of certain income and expense items that management believes make it more difficult to assess the Company’s actual operating performance including certain items which are generally non-recurring.  We have historically excluded the impact of such items from internal performance assessments.  We believe that excluding items such as Sponsors’ management and advisory fees, goodwill and asset impairment charges, restructuring charges, impact of litigation, noncontrolling interest, net gains on sales of properties and other charges, helps investors compare our operating performance with our results in prior periods.  We believe it is appropriate to exclude these items as they are not related to ongoing operating performance and, therefore, limit comparability between periods and between us and similar companies.