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Toys "R" Us, Inc. Reports Results For Third Quarter 2017

WAYNE, N.J., Dec. 19, 2017 /PRNewswire/ -- Toys "R" Us, Inc. ("the Company") today reported financial results for the third quarter of fiscal 2017, which ended October 28, 2017.

"Our results for the quarter were disappointing. They not only reflect the broad competitive trends across retail, they demonstrate the continued challenges we face in both the baby and learning categories. Though we continue to see growth in our core toy category, we recognize the need for change in order to better meet customers' ever evolving shopping preferences" said Dave Brandon, Chairman and Chief Executive Officer, Toys"R"Us, Inc. "The financial restructuring process that we kicked off in mid-September was a critical first step, allowing us to restructure our balance sheet and make the necessary investments in the right initiatives needed to reinvent our business and deliver on our commitment to be Champions of Play for kids everywhere and a trusted resource and friend for parents around the world. This process won't happen overnight but I am confident the steps we are taking will meaningfully improve the customer experience."

On September 18, 2017 ("the Petition Date"), the Company and certain of its U.S. subsidiaries and its Canadian subsidiary ("Toys-Canada") voluntarily filed for relief under Chapter 11 of the Bankruptcy Code. In addition, Toys-Canada voluntarily commenced parallel proceedings under the CCAA in Canada. In accordance with accounting principles generally accepted in the United States ("GAAP"), as joint control by the U.S. and Canadian courts does not constitute continued common control by the Company, the operating results of Toys-Canada and its subsidiaries are no longer consolidated with Toys"R"Us, Inc. subsequent to September 18, 2017. Due to the deconsolidation of Toy-Canada, the Toys"R"Us, Inc. operating results during fiscal 2017 are not comparable with fiscal 2016 and therefore we have excluded Toys-Canada in the results discussed below. See the tables below for a reconciliation from the "As Reported Toys"R"Us - Consolidated" to "Toys"R"Us - Ex. Canada" for the thirteen weeks ended October 28, 2017.



13 Weeks Ended



October 28, 2017


October 29, 2016

($ In millions)


As Reported
Toys "R" Us -
Consolidated


Toys-Canada
(1)


Toys "R" Us -
Ex. Canada


As Reported
Toys "R" Us -
Consolidated


Toys-Canada
(2)


Toys "R" Us -
Ex. Canada

Net sales













Domestic


$

1,257


$


$

1,257


$

1,349


$


$

1,349

International


850


89


761


929


171


758

Net sales


2,107


89


2,018


2,278


171


2,107

Gross margin













Domestic


355



355


459



459

International


323


34


289


362


64


298

Gross margin


678


34


644


821


64


757

Selling, general and administrative expenses


826


28


798


835


50


785

Depreciation and amortization


73


2


71


76


3


73

Other income, net


(20)


(3)


(17)


(59)


2


(61)

Total operating expenses


879


27


852


852


55


797

Operating (loss) earnings


(201)


7


(208)


(31)


9


(40)

Interest expense


(88)


(3)


(85)


(122)


(1)


(121)

Interest income


1



1


1



1

Reorganization items, net


(334)



(334)




(Loss) earnings before income taxes


(622)


4


(626)


(152)


8


(160)

Income tax expense (benefit)



3


(3)


3


4


(1)

Net (loss) earnings


(622)


1


(623)


(155)


4


(159)

Less: Net earnings attributable to noncontrolling interest


1



1


1



1

Net (loss) earnings attributable to Toys "R" Us, Inc.


$

(623)


$

1


$

(624)


$

(156)


$

4


$

(160)














Same store sales


(4.5)%


(6.4)%


(4.4)%


(2.1)%


4.9%


(2.7)%

Adjusted EBITDA(3)


$

(89)


$

8


$

(97)


$

21


$

16


$

5



(1)

Represents operating results of Toys-Canada prior to September 19, 2017.

(2)

Represents operating results of Toys-Canada for the thirteen weeks ended October 29, 2016.

(3)

A detailed description and reconciliation of EBITDA and Adjusted EBITDA for Toys"R"Us, Inc., Toys"R"Us-Delaware, Inc., and Toys-Canada and management's reasons for using these measures, are set forth at the end of this press release.

Third Quarter 2017 Results - Excluding Canada

  • Net sales were $2,018 million, a decrease of $89 million compared to the prior year period. Excluding a $6 million negative impact from foreign currency translation, net sales declined by $83 million largely attributable to a decline in same store sales most notably in the baby category. Partially offsetting the decrease was an increase in consolidated e-commerce sales.
  • Consolidated same store sales decreased by 4.4% driven by a 7.0% decline domestically, offset by a 0.4% increase within International Ex. Canada, as a result of growth in Asia.
  • Gross margin dollars were $644 million, a decline of $113 million compared to the prior year period. Gross margin rate was 31.9%, a decrease of 400 basis points. Domestic gross margin rate declined by 580 basis points, due to a reduction in vendor allowances as a result of the Chapter 11 filing as well as an increase in promotions and our competitive pricing strategy. International Ex. Canada gross margin rate declined by 130 basis points due to an increase in promotions.
  • SG&A was $798 million, an increase of $13 million compared to the prior year period. The increase in SG&A was primarily due to an increase in advertising expenses and restructuring advisory fees, partially offset by expense reduction initiatives.
  • Operating loss was $208 million, compared to $40 million in the prior year period. Domestic segment operating loss increased by $95 million due to a reduction in gross margin dollars. International Ex. Canada operating earnings decreased by $20 million. Corporate overhead increased by $53 million primarily due to the gain in third quarter 2016 on the sale of the FAO Schwarz brand.
  • Adjusted EBITDA for the quarter was negative $97 million, compared to positive $5 million in the prior year period.
  • Reorganization items, net1 of $334 million consist of expenses and gains and losses that directly relate to the restructuring process.
  • The above results produced a Net loss of $624 million, compared to $160 million in the prior year period.

Liquidity and Capital Spending

The Company, including Toys"R"Us-Delaware, Inc. and Toys-Canada, ended the third quarter with total liquidity of $1.3 billion, which was comprised of cash and cash equivalents of $461 million (inclusive of $29 million of Toys-Canada cash) and availability under committed lines of credit and the Term DIP Facility of $837 million. Total availability under the $1.85 billion DIP ABL Facility was initially capped at $1.3 billion and has subsequently expired. Excluding the cap, the Company would have had total liquidity of $1.5 billion as of the third quarter.

Toys"R"Us-Delaware, Inc., including Toys-Canada, ended the quarter with $840 million of liquidity, which included $100 million of availability under the Term DIP Facility, cash and cash equivalents of $156 million (inclusive of $29 million of Toys-Canada cash) and availability under its revolving line of credit of $584 million. Excluding the $1.3 billion cap referenced above, total liquidity would have been $1.1 billion.

Through the end of the third quarter, capital spending (inclusive of Toys-Canada through September 18, 2017) was $120 million, compared to $174 million in the prior year period, a decrease of $54 million.

1 Refer to the Toys "R" Us, Inc. Form 10-Q filed on December 19, 2017 for further details on the composition of Reorganization items, net.

About Toys"R"Us, Inc.

Toys "R" Us, Inc. is the world's leading dedicated toy and baby products retailer, offering a differentiated shopping experience through its family of brands. Merchandise is sold in 881 Toys"R"Us and Babies"R"Us stores in the United States, Puerto Rico and Guam, and in 840 international stores and over 265 licensed stores in 38 countries and jurisdictions. With its strong portfolio of e-commerce sites including Toysrus.com and Babiesrus.com, the company provides shoppers with a broad online selection of distinctive toy and baby products. Toys"R"Us, Inc. is headquartered in Wayne, NJ, and has nearly 65,000 employees 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. Over the past three decades, the Company has given more than $100 million in product donations to children's charities. Since 1992, the Toys"R"Us Children's Fund, a public charity affiliated with Toys"R"Us, Inc., has also donated more than $130 million in grants. For more information, visit Toysrusinc.com or follow @ToysRUsNews on Twitter.

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 risks and uncertainties associated with Chapter 11 proceedings, harm to our business as a result of operating under Bankruptcy Court protection, an inability to obtain confirmation of a Chapter 11 plan of reorganization, difficulty in predicting our long-term liquidity requirements and the adequacy of our capital resources, volatility in our financial results as a result of Chapter 11 proceedings, claims that will not be discharged in Chapter 11 proceedings, which could have an adverse impact on our financial condition and results of operations, increased levels of employee attrition as a result of Chapter 11 proceedings, the risk that our Chapter 11 cases may be converted to cases under Chapter 7 of the Bankruptcy Code, 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, birth rates, our ability to implement our strategy including implementing initiatives for season, our ability to recognize cost savings, implementation and operation of our new e-commerce platform, marketing strategies, the availability of adequate financing, ability to repatriate cash from our foreign operations, ability to distribute cash from our operating subsidiaries to their parent entities, 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 they were 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 any forward-looking statement.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(DEBTOR-IN-POSSESSION)

(Unaudited)





13 Weeks Ended


39 Weeks Ended

(In millions)


October 28,

2017


October 29,

2016


October 28,

2017


October 29,

2016

Net sales


$

2,107


$

2,278


$

6,485


$

6,879

Cost of sales


1,429


1,457


4,247


4,350

Gross margin


678


821


2,238


2,529

Selling, general and administrative expenses


826


835


2,303


2,423

Depreciation and amortization


73


76


223


240

Other income, net


(20)


(59)


(75)


(114)

Total operating expenses


879


852


2,451


2,549

Operating loss


(201)


(31)


(213)


(20)

Interest expense


(88)


(122)


(317)


(347)

Interest income


1


1


2


2

Reorganization items, net


(334)



(334)


Loss before income taxes


(622)


(152)


(862)


(365)

Income tax expense



3


88


8

Net loss


(622)


(155)


(950)


(373)

Less: Net earnings attributable to noncontrolling interest


1


1


3


4

Net loss attributable to Toys "R" Us, Inc.


$

(623)


$

(156)


$

(953)


$

(377)

CONDENSED CONSOLIDATED BALANCE SHEETS

(DEBTOR-IN-POSSESSION)

(Unaudited)




(In millions)


October 28,

2017


January 28,

2017


October 29,

2016

ASSETS







Current Assets:







Cash and cash equivalents


$

432


$

566


$

420

Accounts and other receivables


282


255


301

Merchandise inventories


2,912


2,476


3,472

Prepaid expenses and other current assets


216


92


135

Total current assets


3,842


3,389


4,328

Property and equipment, net


2,842


3,067


3,074

Goodwill


64


64


64

Deferred tax assets


18


129


99

Restricted cash


313


54


49

Other assets


183


205


252

Total Assets


$

7,262


$

6,908


$

7,866








LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS' DEFICIT







Current Liabilities:







Accounts payable


$

1,153


$

1,695


$

2,107

Accrued expenses and other current liabilities


460


897


950

Income taxes payable


6


27


33

Current portion of long-term debt


95


119


70

Total current liabilities


1,714


2,738


3,160

Long-term debt


2,844


4,642


5,493

Deferred tax liabilities


38


75


79

Deferred rent liabilities


155


342


341

Other non-current liabilities


161


271


260

Total liabilities not subject to compromise


4,912


8,068


9,333

Liabilities subject to compromise


4,349



Temporary equity



132


119

Total stockholders' deficit


(1,999)


(1,292)


(1,586)

Total Liabilities, Temporary Equity and Stockholders' Deficit


$

7,262


$

6,908


$

7,866

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(DEBTOR-IN-POSSESSION)

(Unaudited)





39 Weeks Ended

(In millions)


October 28,

2017


October 29,

2016

Cash Flows from Operating Activities:





Net loss


$

(950)


$

(373)

Adjustments to reconcile Net loss to Net cash used in operating activities:





Depreciation and amortization


223


240

Amortization and write-off of debt issuance costs and debt discount


23


25

Gains on sales of assets


(1)


(45)

Deferred income taxes


76


6

Unrealized gains on foreign exchange


(8)


(6)

Reorganization items (1)


168


Loss on deconsolidation of Toys-Canada


156


Other


23


14

Changes in operating assets and liabilities:





Accounts and other receivables


(10)


(25)

Merchandise inventories


(596)


(1,188)

Prepaid expenses and other operating assets


(131)


(38)

Accounts payable, Accrued expenses and other liabilities


322


358

Income taxes payable, net


(25)


(28)

Net cash used in operating activities


(730)


(1,060)

Cash Flows from Investing Activities:





Capital expenditures


(120)


(174)

Proceeds from sales of assets


1


47

Deconsolidation of Toys-Canada


(6)



Increase in restricted cash


(257)


(1)

Net cash used in investing activities


(382)


(128)

Cash Flows from Financing Activities:





Long-term debt borrowings


2,485


1,777

Long-term debt repayments


(1,436)


(852)

Short-term debt borrowings, net


4


7

Capitalized debt issuance costs


(2)


(10)

Distribution to noncontrolling interest



(12)

DIP debt financing costs


(82)


Net cash provided by financing activities


969


910

Effect of exchange rate changes on Cash and cash equivalents


9


18

Cash and cash equivalents:





Net decrease during period


(134)


(260)

Cash and cash equivalents at beginning of period


566


680

Cash and cash equivalents at end of period


$

432


$

420


(1) Includes cash flows from financing activities of $82 million for DIP debt financing costs.

OPERATING METRICS EXCLUDING CANADA

(DEBTOR-IN-POSSESSION)

(Unaudited)






13 Weeks Ended


39 Weeks Ended



October 28,

2017


October 29,

2016


October 28,

2017


October 29,

2016

Domestic Segment:









Operating Data










Gross margin as a percentage of net sales


28.2%


34.0%


31.4%


35.0%


Same store sales


(7.0)%


(1.9)%


(6.7)%


(0.6)%

Net Sales by Product Category










Baby


43.8%


46.1%


44.8%


46.8%


Core Toy


19.7%


16.6%


16.7%


14.8%


Entertainment


4.4%


4.5%


5.0%


4.9%


Learning


20.5%


21.4%


18.7%


19.0%


Seasonal


11.2%


10.9%


14.2%


14.0%


Other (1)


0.4%


0.5%


0.6%


0.5%


Total


100%


100%


100%


100%











International Ex. Canada:









Operating Data










Gross margin as a percentage of net sales


38.0


39.3%


39.2%


39.9%


Same store sales (2)


0.4


(4.2)%


—%


(1.1)%

Net Sales by Product Category










Baby


21.9


23.5%


22.7%


24.1%


Core Toy


24.9


23.4%


23.3%


22.2%


Entertainment


5.9


5.0%


6.1%


5.1%


Learning


31.8


31.3%


29.7%


29.8%


Seasonal


14.6


15.7%


17.2%


17.7%


Other (3)


0.9


1.1%


1.0%


1.1%


Total


100.0


100.0%


100.0%


100.0%











Consolidated Ex. Canada:









Operating Data










Gross margin as a percentage of net sales


31.9


35.9%


34.2%


36.7%


Same store sales (2)


(4.4)%


(2.7)%


(4.4)%


(0.7)%


(1) Consists primarily of non-product related revenues.

(2) Excludes the impact of foreign currency translation.

(3) Consists primarily of non-product related revenues, including licensing revenue from unaffiliated third parties.

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 in the Company regularly request Adjusted EBITDA as a supplemental analytical measure to, and in conjunction with, the Company's financial data prepared in accordance with GAAP. 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.

Reconciliation of Net (loss) earnings attributable to Toys "R" Us, Inc. to EBITDA and Adjusted EBITDA is as follows:



QTD



As Reported
Toys "R" Us -
Consolidated
(1)


Less: Toys-
Canada (1)


Toys "R" Us -
Consolidated
Ex. Canada


Add: Toys-
Canada (2)


Proforma
Toys "R" Us -
Consolidated
(3)


As Reported
Toys "R" Us -
Consolidated

(In millions)


October 28,

2017


September 18,

2017


October 28,

2017


October 28,

2017


October 28,

2017


October 29,

2016

Net (loss) earnings attributable to Toys
"R" Us, Inc.


$

(623)


$

1


$

(624)


$

(28)


$

(652)


$

(156)














Add:













Income tax expense



3


(3)


4


1


3

Interest expense, net


87


3


84


5


89


121

Depreciation and amortization


73


2


71


3


74


76

EBITDA


(463)


9


(472)


(16)


(488)


44














Adjustments:













Reorganization items, net


334



334


19


353


Compensation expense (a)


18



18



18


6

Certain transaction costs (b)


14



14



14


5

Property losses, net of insurance
recoveries (c)


5



5



5


Sponsors' management and advisory fees
(d)


2



2



2


2

Severance


2



2


1


3


2

Net earnings attributable to
noncontrolling interest


1



1



1


1

Foreign currency re-measurement (e)


(1)


(1)



7


7


4

Gains on sales of assets (f)


(1)



(1)



(1)


(45)

Impairment of long-lived assets







2

Store closure costs (g)







Litigation (h)


$


$



$



Adjusted EBITDA (i)


$

(89)


$

8


$

(97)


$

11


$

(86)


$

21



(1)

Includes the operating results of Toy-Canada through September 18, 2017, the Petition Date.



(2)

Represents operating results of Toys-Canada for the thirteen weeks ended October 28, 2017. Also includes the impact of intercompany eliminations such as intercompany loans between the U.S. and Canada and ITASSA management service fees.



(3)

Represents proforma operating results of Consolidated Toys "R" Us, Inc., inclusive of Toys-Canada operating results for the thirteen weeks ended October 28, 2017.



YTD



As Reported
Toys "R" Us -
Consolidated
(1)


Less: Toys-
Canada (1)


Toys "R" Us -
Consolidated
Ex. Canada


Add: Toys-
Canada (2)


Proforma
Toys "R" Us -
Consolidated
(3)


As Reported
Toys "R" Us -
Consolidated

(In millions)


October 28,

2017


September 18,

2017


October 28,

2017


October 28,

2017


October 28,

2017


October 29,

2016

Net (loss) earnings attributable to Toys
"R" Us, Inc.


$

(953)


$

17


$

(970)


$

(12)


$

(982)


$

(377)














Add:













Income tax expense


88


13


75


14


89


8

Interest expense, net


315


14


301


16


317


345

Depreciation and amortization


223


9


214


11


225


240

EBITDA


(327)


53


(380)


29


(351)


216














Adjustments:













Reorganization items, net


334



334


19


353


Compensation expense (a)


(19)



(19)



(19)


20

Certain transaction costs (b)


19



19



19


15

Property losses, net of insurance
recoveries (c)


5



5



5


(1)

Sponsors' management and advisory fees
(d)


5



5



5


5

Severance


16



16


1


17


5

Net earnings attributable to
noncontrolling interest


3



3



3


4

Foreign currency re-measurement (e)


(8)


(8)





(5)

Gains on sales of assets (f)


(1)



(1)



(1)


(45)

Impairment of long-lived assets


2



2



2


3

Store closure costs (g)


2



2



2


Litigation (h)


$

(3)


$

(2)


(1)


$

(2)


(3)


4

Adjusted EBITDA (i)


$

28


$

43


$

(15)


$

47


$

32


$

221



(1)

Includes the operating results of Toy-Canada through September 18, 2017, the Petition Date.


(2)

Represents operating results of Toys-Canada for the thirty-nine weeks ended October 28, 2017. Also includes the impact of intercompany eliminations such as intercompany loans between the U.S. and Canada and ITASSA management service fees.


(3)

Represents proforma operating results of Consolidated Toys "R" Us, Inc., inclusive of Toys-Canada operating results for the thirty-nine weeks ended October 28, 2017.

A reconciliation of Net (loss) earnings to EBITDA and Adjusted EBITDA for Toys "R" Us-Delaware, Inc. is as follows:



QTD



As Reported
Toys "R" Us
- Delaware
Consolidated
(1)


Less: Toys-
Canada (1)


Toys "R" Us
- Delaware
Ex. Canada


Add: Toys-
Canada (2)


Proforma
Toys "R" Us
- Delaware
Consolidated
(3)


As Reported
Toys "R" Us
- Delaware
Consolidated

(In millions)


October 28,

2017


September 18,

2017


October 28,

2017


October 28,

2017


October 28,

2017


October 29,

2016

Net (loss) earnings


$

(520)


$

1


$

(521)


$

(28)


$

(549)


$

(83)














Add:













Income tax expense


5


3


2


4


6


4

Interest expense, net


33


3


30


5


35


36

Depreciation and amortization


44


2


42


3


45


47

EBITDA


(438)


9


(447)


(16)


(463)


4














Adjustments:













Reorganization items, net


292



292


19


311


Compensation expense (a)


11



11



11


Certain transaction costs (b)


7



7



7


5

Property losses, net of insurance recoveries (c)


5



5



5


Sponsors' management and advisory fees (d)


2



2



2


2

Foreign currency re-measurement (e)


(1)


(1)



7


7


4

Severance





1


1


2

Store closure costs (g)







Litigation (h)







Net gains on sales (f)







(45)

Impairment of long-lived assets







Adjusted EBITDA (i)


$

(122)


$

8


$

(130)


$

11


$

(119)


$

(28)



(1)

Includes the operating results of Toy-Canada through September 18, 2017, the Petition Date.


(2)

Represents operating results of Toys-Canada for the thirteen weeks ended October 28, 2017. Also includes the impact of intercompany eliminations such as intercompany loans between the U.S. and Canada and ITASSA management service fees.


(3)

Represents proforma operating results of Consolidated Toys "R" Us - Delaware, Inc., inclusive of Toys-Canada operating results for the thirteen weeks ended October 28, 2017.



YTD



As Reported
Toys "R" Us -
Delaware
Consolidated
(1)


Less: Toys-
Canada (1)


Toys "R" Us -
Delaware
Ex. Canada


Add: Toys-
Canada (2)


Proforma
Toys "R" Us -
Delaware
Consolidated
(3)


As Reported
Toys "R" Us -
Delaware
Consolidated

(In millions)


October 28,

2017


September 18,

2017


October 28,

2017


October 28,

2017


October 28,

2017


October 29,

2016

Net (loss) earnings


$

(682)


$

17


$

(699)


$

(12)


$

(711)


$

(198)














Add:













Income tax expense


14


13


1


14


15


13

Interest expense, net


104


14


90


16


106


117

Depreciation and amortization


136


9


127


11


138


151

EBITDA


(428)


53


(481)


29


(452)


83














Adjustments:













Reorganization items, net


292



292


19


311


Compensation expense (a)


9



9



9


2

Certain transaction costs (b)


12



12



12


13

Property losses, net of insurance recoveries (c)


5



5



5


Sponsors' management and advisory fees (d)


5



5



5


5

Foreign currency re-measurement (e)


(8)


(8)





(5)

Severance


10



10


1


11


3

Store closure costs (g)


2



2



2


7

Litigation (h)


(3)


(2)


(1)


(2)


(3)


Net gains on sales (f)







(45)

Impairment of long-lived assets







1

Adjusted EBITDA (i)


$

(104)


$

43


$

(147)


$

47


$

(100)


$

64



(1)

Includes the operating results of Toy-Canada through September 18, 2017, the Petition Date.



(2)

Represents operating results of Toys-Canada for the thirty-nine weeks ended October 28, 2017. Also includes the impact of intercompany eliminations such as intercompany loans between the U.S. and Canada and ITASSA management service fees.



(3)

Represents proforma operating results of Consolidated Toys "R" Us - Delaware, Inc., inclusive of Toys-Canada operating results for the thirteen weeks ended October 28, 2017.





(a)

Represents the incremental compensation expense (benefit) related to certain one-time awards and modifications including retention awards, net of forfeitures and reversals relating to certain officers' awards based on performance targets.

(b)

Represents expenses associated with the bankruptcy filing prior to the U.S. Petition Date, the transition of our U.S. e-commerce operations and other transaction costs.

(c)

Represents property losses and insurance claims recognized.

(d)

Represents the fees expensed to our Sponsors in accordance with the advisory agreement.

(e)

Represents the unrealized (gain) loss on foreign exchange related to the re-measurement of the portion of the Tranche A-1 loan facility attributed to Toys-Canada through September 18, 2017. As a result of the bankruptcy filing, we deconsolidated Toys-Canada as of the Canadian Petition Date. In addition, as a result of the Chapter 11 bankruptcy filings, we no longer had foreign currency forward contracts to economically hedge our intercompany loans. Therefore, subsequent to the U.S. Petition date, foreign exchange (gain) loss incurred on our cross currency intercompany loans was recorded in Other income, net.

(f)

Represents sales of properties and intellectual property.

(g)

Represents store closure costs, net of lease surrender income.

(h)

Represents certain litigation expenses and settlements recorded for legal matters.

(i)

Adjusted EBITDA is defined as EBITDA (earnings (loss) 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 excluded the impact of such items from internal performance assessments. We believe that excluding items such as Sponsors' management and advisory fees, asset impairment charges, severance, impact of litigation, store closure costs, noncontrolling interest, net gains on sales, reorganization items 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.

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SOURCE Toys"R"Us, Inc.