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
   
 (TOYS R US, INC LOGO)
TOYS R US, INC.
 (Exact name of registrant as specified in its charter)
 
 Delaware
    
    22-3260693(State or other jurisdiction of
    
    (IRS Employerincorporation or organization)
    
    Identification Number)One Geoffrey WayWayne, New Jersey
    
    07470(Address of principal executive offices)
    
    (Zip code)
 (973) 617-3500(Registrants telephone number, including area code)
 
 x o
  Large accelerated filer o
    
    Accelerated filer oNon-accelerated filer x (Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o x




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##### 



TOYS R US, INC. AND SUBSIDIARIES
 TABLE OF CONTENTS
 PAGEPART I  FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Condensed Consolidated Balance Sheets as of August 2, 2008, February 2, 2008 and August 4, 2007
    
    
    3Condensed Consolidated Statements of Operations for the thirteen and twenty-six weeks ended August 2, 2008and August 4, 2007
    
    
    4Condensed Consolidated Statements of Cash Flows for the twenty-six weeks ended August 2, 2008 and August4, 2007
    
    
    5Condensed Consolidated Statement of Stockholders Deficit for the twenty-six weeks ended August 2, 2008
    
    
    6Notes to the Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    28Item 4. Controls and Procedures
    
    
    29PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    30Item 1A. Risk Factors
    
    
    30Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    30Item 3. Defaults Upon Senior Securities
    
    
    30Item 4. Submission of Matters to a Vote of Security Holders
    
    
    30Item 5. Other Information
    
    
    30Item 6. Exhibits
    
    
    30SIGNATURE
    
    
    31INDEX TO EXHIBITS
    
    
    32
  2




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##### 



PART I  FINANCIAL INFORMATION
 
 Item 1.
    
    Financial Statements
 
 TOYS R US, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 August 2,
    
    
    February 2,
    
    
    August 4,(In millions)
    
    2008
    
    
    2008
    
    
    2007ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    387
    
    
    $
    751
    
    
    $
    230Short-term investments
    
    
    -
    
    
    
    168
    
    
    
    -Accounts and other receivables
    
    
    155
    
    
    
    256
    
    
    
    173Merchandise inventories
    
    
    2,193
    
    
    
    1,998
    
    
    
    2,090Income taxes receivable
    
    
    -
    
    
    
    -
    
    
    
    92Current deferred tax assets
    
    
    80
    
    
    
    80
    
    
    
    58Prepaid expenses and other current assets
    
    
    162
    
    
    
    140
    
    
    
    135Total current assets
    
    
    2,977
    
    
    
    3,393
    
    
    
    2,778Property and equipment, net
    
    
    4,346
    
    
    
    4,385
    
    
    
    4,321Goodwill, net
    
    
    366
    
    
    
    366
    
    
    
    365Deferred tax assets
    
    
    193
    
    
    
    197
    
    
    
    132Restricted cash
    
    
    132
    
    
    
    131
    
    
    
    127Other assets
    
    
    459
    
    
    
    480
    
    
    
    501$
    8,473
    
    
    $
    8,952
    
    
    $
    8,224LIABILITIES AND STOCKHOLDERS DEFICITCurrent Liabilities:Short-term borrowings
    
    $
    82
    
    
    $
    -
    
    
    $
    235Accounts payable
    
    
    1,301
    
    
    
    1,534
    
    
    
    1,202Accrued expenses and other current liabilities
    
    
    836
    
    
    
    996
    
    
    
    762Income taxes payable
    
    
    34
    
    
    
    128
    
    
    
    14Current portion of long-term debt
    
    
    26
    
    
    
    50
    
    
    
    94Total current liabilities
    
    
    2,279
    
    
    
    2,708
    
    
    
    2,307Long-term debt
    
    
    5,905
    
    
    
    5,824
    
    
    
    5,820Deferred tax liabilities
    
    
    21
    
    
    
    21
    
    
    
    34Deferred rent liabilities
    
    
    265
    
    
    
    261
    
    
    
    254Other non-current liabilities
    
    
    337
    
    
    
    374
    
    
    
    389Minority interest in Toys - Japan
    
    
    98
    
    
    
    153
    
    
    
    130Stockholders deficit
    
    
    (432
    )
    
    
    (389
    )
    
    
    (710
    )$
    8,473
    
    
    $
    8,952
    
    
    $
    8,224
  3




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##### 



TOYS R US, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 13 Weeks Ended
    
    26 Weeks EndedAugust 2,
    
    
    August 4,
    
    
    August 2,
    
    
    August 4,(In millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Net sales
    
    $
    2,771
    
    
    $
    2,605
    
    
    $
    5,490
    
    
    $
    5,186Cost of sales
    
    
    1,757
    
    
    
    1,669
    
    
    
    3,499
    
    
    
    3,341Gross margin
    
    
    1,014
    
    
    
    936
    
    
    
    1,991
    
    
    
    1,845Selling, general and administrative expenses
    
    
    875
    
    
    
    819
    
    
    
    1,750
    
    
    
    1,613Depreciation and amortization
    
    
    103
    
    
    
    101
    
    
    
    203
    
    
    
    197Gain on liquidation of foreign subsidiary
    
    
    (39
    )
    
    
    -
    
    
    
    (39
    )
    
    
    -Net gains on sales of properties
    
    
    (4
    )
    
    
    (12
    )
    
    
    (4
    )
    
    
    (16
    )Total operating expenses
    
    
    935
    
    
    
    908
    
    
    
    1,910
    
    
    
    1,794Operating earnings
    
    
    79
    
    
    
    28
    
    
    
    81
    
    
    
    51Other (expense) income:Interest expense
    
    
    (100
    )
    
    
    (120
    )
    
    
    (200
    )
    
    
    (242
    )Interest income
    
    
    4
    
    
    
    4
    
    
    
    11
    
    
    
    12Loss before income taxes and minority interest
    
    
    (17
    )
    
    
    (88
    )
    
    
    (108
    )
    
    
    (179
    )Income tax benefit
    
    
    26
    
    
    
    45
    
    
    
    70
    
    
    
    89Minority interest
    
    
    4
    
    
    
    1
    
    
    
    15
    
    
    
    7Net earnings (loss)
    
    $
    13
    
    
    $
    (42
    )
    
    $
    (23
    )
    
    $
    (83
    )
  4




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##### 



TOYS R US, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 26 Weeks EndedAugust 2,
    
    
    August 4,(In millions)
    
    2008
    
    
    2007Cash Flows from Operating Activities:Net loss
    
    $
    (23
    )
    
    $
    (83
    )Adjustments to reconcile Net loss to net cash used in operating activities:Depreciation and amortization
    
    
    203
    
    
    
    197Net gains on sales of properties
    
    
    (4
    )
    
    
    (16
    )Amortization of debt issuance costs
    
    
    17
    
    
    
    14Minority interest in Toys - Japan
    
    
    (15
    )
    
    
    (7
    )Deferred income taxes
    
    
    46
    
    
    
    (32
    )Gain on liquidation of foreign subsidiary
    
    
    (39
    )
    
    
    -Other
    
    
    (1
    )
    
    
    10Changes in operating assets and liabilities:Accounts and other receivables
    
    
    105
    
    
    
    66Merchandise inventories
    
    
    (185
    )
    
    
    (379
    )Prepaid expenses and other operating assets
    
    
    (3
    )
    
    
    (3
    )Accounts payable
    
    
    (246
    )
    
    
    (127
    )Accrued expenses and other liabilities
    
    
    (252
    )
    
    
    (178
    )Income taxes payable and receivable
    
    
    (88
    )
    
    
    (97
    )Net cash used in operating activities
    
    
    (485
    )
    
    
    (635
    )Cash Flows from Investing Activities:Capital expenditures
    
    
    (175
    )
    
    
    (100
    )(Increase) decrease in restricted cash
    
    
    (1
    )
    
    
    21Purchase of Toys-Japan shares
    
    
    (34
    )
    
    
    -Proceeds from sales of fixed assets
    
    
    29
    
    
    
    15Proceeds from sales of short-term investments
    
    
    167
    
    
    
    -Net cash used in investing activities
    
    
    (14
    )
    
    
    (64
    )Cash Flows from Financing Activities:Long-term debt borrowings
    
    
    278
    
    
    
    155Short-term debt borrowings
    
    
    100
    
    
    
    146Long-term debt repayment
    
    
    (235
    )
    
    
    (80
    )Short-term debt repayment
    
    
    (17
    )
    
    
    (65
    )Other
    
    
    (5
    )
    
    
    (1
    )Net cash provided by financing activities
    
    
    121
    
    
    
    155Effect of exchange rate changes on cash and cash equivalents
    
    
    14
    
    
    
    9Cash and cash equivalents:Net decrease during period
    
    
    (364
    )
    
    
    (535
    )Cash and cash equivalents at beginning of period
    
    
    751
    
    
    
    765Cash and cash equivalents at end of period
    
    $
    387
    
    
    $
    230
  5




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##### 



TOYS R US, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS DEFICIT
(Unaudited)
 AccumulatedCommon Stock
    
    Additional
    
    Other
    
    
    
    
    
    TotalIssued
    
    Paid-in
    
    Comprehensive
    
    Accumulated
    
    Stockholders(In millions)
    
    Shares
    
    Amount
    
    Capital
    
    Loss
    
    Deficit
    
    DeficitBalance, February 2, 2008
    
    
    -
    
    
    $
    -
    
    
    $
    10
    
    
    $
    20
    
    
    $
    (419
    )
    
    $
    (389
    )Cumulative effect of change in accounting
principle, net of tax (Note 2)
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    1
    
    
    
    1Net loss
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (23
    )
    
    
    (23
    )Unrealized gain on hedged
transactions, net of tax
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    10
    
    
    
    -
    
    
    
    10Foreign currency effect on liquidation of
foreign subsidiary
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    (39
    )
    
    
    -
    
    
    
    (39
    )Foreign currency translation
adjustments, net of tax
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    3
    
    
    
    -
    
    
    
    3Toys R Us Holdings, Inc. reorganization (1)
    
    
    49
    
    
    
    -
    
    
    
    1
    
    
    
    -
    
    
    
    -
    
    
    
    1Stock compensation expense
    
    
    -
    
    
    
    -
    
    
    
    4
    
    
    
    -
    
    
    
    -
    
    
    
    4Balance, August 2, 2008
    
    
    49
    
    
    $
    -
    
    
    $
    15
    
    
    $
    (6
    )
    
    $
    (441
    )
    
    $
    (432
    )(1)Pursuant to the reorganization on June 10, 2008, our 1,000 shares, $0.01 par value, were exchanged for 48,955,808 shares, $0.001 par value. See Note 12 entitled Reorganization for information on the issuance of new common stock.
  6




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##### 



TOYS R US, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1. Basis of presentation
  2. Change in accounting principle
  
    
    37% of merchandise inventories were previously valued at retail LIFO (last-in,
first-out) and were converted to LIFO cost;
    
    18% of merchandise inventories were previously valued at retail FIFO (first-in,
first-out) and were converted to weighted average cost; and
    
    7% of merchandise inventories were previously valued at retail LIFO and were
converted to weighted average cost.
 
   7




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##### 



(In millions)As of August 2, 2008
    
    As Reported
    
    Pro Forma
    
    ChangeMerchandise inventories
    
    $
    2,193
    
    
    $
    2,172
    
    
    $
    21Total current assets
    
    
    2,977
    
    
    
    2,956
    
    
    
    21Total assets
    
    
    8,473
    
    
    
    8,452
    
    
    
    21Accrued expenses and other current liabilities
    
    
    836
    
    
    
    828
    
    
    
    8Total current liabilities
    
    
    2,279
    
    
    
    2,271
    
    
    
    8Stockholders deficit
    
    
    (432
    )
    
    
    (445
    )
    
    
    13Total liabilities and stockholders deficit
    
    
    8,473
    
    
    
    8,452
    
    
    
    21
  (In millions)For the 13 Weeks Ended August 2, 2008
    
    As Reported
    
    Pro Forma
    
    ChangeCost of sales
    
    $
    1,757
    
    
    $
    1,767
    
    
    $
    (10
    )Gross margin
    
    
    1,014
    
    
    
    1,004
    
    
    
    10Operating earnings
    
    
    79
    
    
    
    69
    
    
    
    10Loss before income taxes and minority interest
    
    
    (17
    )
    
    
    (27
    )
    
    
    10Income tax benefit
    
    
    26
    
    
    
    30
    
    
    
    (4
    )Net earnings
    
    
    13
    
    
    
    7
    
    
    
    6
 (In millions)For the 26 Weeks Ended August 2, 2008
    
    As Reported
    
    Pro Forma
    
    ChangeCost of sales
    
    $
    3,499
    
    
    $
    3,521
    
    
    $
    (22
    )Gross margin
    
    
    1,991
    
    
    
    1,969
    
    
    
    22Operating earnings
    
    
    81
    
    
    
    59
    
    
    
    22Loss before income taxes and minority interest
    
    
    (108
    )
    
    
    (130
    )
    
    
    22Income tax benefit
    
    
    70
    
    
    
    79
    
    
    
    (9
    )Net loss
    
    
    (23
    )
    
    
    (36
    )
    
    
    13
 8




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##### 



3. Short-term borrowings and long-term debt
  August 2,
    
    February 2,
    
    August 4,(In millions)
    
    2008
    
    2008
    
    2007Short-term borrowingsToys - Japan, short-term bank loans
    
    $
    82
    
    
    $
    -
    
    
    $
    235Long-term debtNote due in semi-annual installments through February 20, 2008
    
    
    -
    
    
    
    21
    
    
    
    32Toys - Japan 0.77%-1.18% loans due fiscal 2008
    
    
    -
    
    
    
    137
    
    
    
    -Toys - Japan committed credit line due fiscal 2011
    
    
    186
    
    
    
    -
    
    
    
    -Asset sale facility, due July 19, 2008
    
    
    -
    
    
    
    -
    
    
    
    35Secured real estate loan, due August 9, 2009 (1)
    
    
    800
    
    
    
    800
    
    
    
    800Unsecured credit agreement, due December 8, 2009 (2)
    
    
    1,300
    
    
    
    1,300
    
    
    
    1,300$2.0 billion secured revolving credit facility, expires fiscal 2010
    
    
    -
    
    
    
    -
    
    
    
    65Multi-currency revolving credit facility, expires fiscal 2010
    
    
    -
    
    
    
    -
    
    
    
    38Toys - Japan 1.20%-2.80% loans maturing fiscals 2010-2014
    
    
    147
    
    
    
    153
    
    
    
    1617.625% notes, due fiscal 2011 (3)
    
    
    515
    
    
    
    517
    
    
    
    519Secured term loan facility, due fiscal 2012
    
    
    797
    
    
    
    797
    
    
    
    801Unsecured credit facility, due fiscal 2012
    
    
    180
    
    
    
    180
    
    
    
    180French real estate credit facility, due fiscal 2012
    
    
    99
    
    
    
    95
    
    
    
    88Spanish real estate credit facility, due fiscal 2012
    
    
    205
    
    
    
    196
    
    
    
    183U.K. real estate senior credit facility, due fiscal 2013
    
    
    699
    
    
    
    696
    
    
    
    724U.K. real estate junior credit facility, due fiscal 2013
    
    
    124
    
    
    
    124
    
    
    
    1297.875% senior notes, due fiscal 2013 (3)
    
    
    393
    
    
    
    392
    
    
    
    3917.375% senior notes, due fiscal 2018 (3)
    
    
    407
    
    
    
    407
    
    
    
    4078.750% debentures, due fiscal 2021 (4)
    
    
    22
    
    
    
    22
    
    
    
    22Capital leases and other
    
    
    57
    
    
    
    37
    
    
    
    395,931
    
    
    
    5,874
    
    
    
    5,914Less current portion
    
    
    26
    
    
    
    50
    
    
    
    94Total long-term debt
    
    $
    5,905
    
    
    $
    5,824
    
    
    $
    5,820
 (1)
 (2)
 (3)
 (4)
  Borrowing Availability
 
 9




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##### 



Toys  Japan Unsecured Credit Lines ( $82 and $186 million at August 2, 2008)
     Secured real estate loan, due August 9, 2008 ( $800 million at August 2, 2008)
  Guarantees
  Subsequent Event
  4. Derivative instruments and hedging activities
   $1.3 Billion Unsecured Credit Agreement
 
 10




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##### 



$800 Million Secured Real Estate Loan
  Toys  Japan interest rate swap
  5. Fair value measurements
    Derivative Financial Instruments
   
 11




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##### 



Short-term Investments
   Significant OtherObservable Inputs(In millions)
    
    (Level 2)Derivative financial instruments
    
    $
    30
  Short-term(In millions)
    
    investmentsBalance, February 3, 2008
    
    $
    168Settlements
    
    
    (148
    )Balance, May 3, 2008
    
    $
    20Settlements
    
    
    (19
    )Total loss
    
    
    (1
    )Balance, August 2, 2008
    
    $
    -
 6. Income taxes
  13 Weeks Ended
    
    
    26 Weeks EndedAugust 2,
    
    August 4,
    
    August 2,
    
    August 4,( $ in millions)
    
    2008
    
    2007
    
    2008
    
    2007Loss before income taxes and minority interest
    
    $
    (17
    )
    
    $
    (88
    )
    
    $
    (108
    )
    
    $
    (179
    )Income tax benefit
    
    
    26
    
    
    
    45
    
    
    
    70
    
    
    
    89Effective tax rate
    
    
    (152.9
    )%
    
    
    (51.1
    )%
    
    
    (64.8
    )%
    
    
    (49.7
    )%
   12




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##### 



7. Comprehensive loss
  13 Weeks Ended
    
    
    26 Weeks EndedAugust 2,
    
    August 4,
    
    August 2,
    
    August 4,(In millions)
    
    2008
    
    2007
    
    2008
    
    2007Net earnings (loss)
    
    $
    13
    
    
    $
    (42
    )
    
    $
    (23
    )
    
    $
    (83
    )Foreign currency translation adjustments, net of tax
    
    
    (2
    )
    
    
    4
    
    
    
    3
    
    
    
    34Foreign currency effect on liquidation of foreign
subsidiary
    
    
    (39
    )
    
    
    -
    
    
    
    (39
    )
    
    
    -Unrealized gain on hedged transactions, net of tax
    
    
    7
    
    
    
    1
    
    
    
    10
    
    
    
    -Comprehensive loss
    
    $
    (21
    )
    
    $
    (37
    )
    
    $
    (49
    )
    
    $
    (49
    )
 8. Segments
  13




---



##### 



13 Weeks Ended
    
    
    26 Weeks EndedAugust 2,
    
    August 4,
    
    August 2,
    
    August 4,2008
    
    2007
    
    2008
    
    2007Juvenile
    
    
    38.9%
    
    
    
    38.0%
    
    
    
    39.7%
    
    
    
    38.7%Entertainment
    
    
    14.2%
    
    
    
    14.4%
    
    
    
    15.0%
    
    
    
    15.1%Seasonal
    
    
    17.8%
    
    
    
    18.0%
    
    
    
    16.3%
    
    
    
    17.1%Learning
    
    
    14.6%
    
    
    
    14.6%
    
    
    
    14.6%
    
    
    
    14.4%Core Toy
    
    
    12.1%
    
    
    
    12.6%
    
    
    
    11.9%
    
    
    
    12.2%Other
    
    
    2.4%
    
    
    
    2.4%
    
    
    
    2.5%
    
    
    
    2.5%Total
    
    
    100.0%
    
    
    
    100.0%
    
    
    
    100.0%
    
    
    
    100.0%
  13 Weeks Ended
    
    
    26 Weeks EndedAugust 2,
    
    August 4,
    
    August 2,
    
    August 4,(In millions)
    
    2008
    
    2007
    
    2008
    
    2007Net salesToys-U.S. (1)
    
    $
    1,058
    
    
    $
    994
    
    
    $
    2,094
    
    
    $
    2,018International (1)
    
    
    1,085
    
    
    
    998
    
    
    
    2,093
    
    
    
    1,906Babies
    
    
    628
    
    
    
    613
    
    
    
    1,303
    
    
    
    1,262Total Net sales
    
    $
    2,771
    
    
    $
    2,605
    
    
    $
    5,490
    
    
    $
    5,186Operating earnings (loss)Toys-U.S.
    
    $
    11
    
    
    $
    8
    
    
    $
    (1
    )
    
    $
    17International
    
    
    14
    
    
    
    19
    
    
    
    (24
    )
    
    
    (3
    )Babies
    
    
    82
    
    
    
    78
    
    
    
    196
    
    
    
    182Corporate and other charges
    
    
    (28
    )
    
    
    (77
    )
    
    
    (90
    )
    
    
    (145
    )Operating earnings
    
    
    79
    
    
    
    28
    
    
    
    81
    
    
    
    51Interest expense
    
    
    (100
    )
    
    
    (120
    )
    
    
    (200
    )
    
    
    (242
    )Interest income
    
    
    4
    
    
    
    4
    
    
    
    11
    
    
    
    12Loss before income taxes and minority interest
    
    $
    (17
    )
    
    $
    (88
    )
    
    $
    (108
    )
    
    $
    (179
    )
 (1)
 August 2,
    
    February 2,
    
    August 4,(In millions)
    
    2008
    
    2008
    
    2007Merchandise inventoriesToys-U.S. (1)
    
    $
    851
    
    
    $
    865
    
    
    $
    870International (2)
    
    
    1,012
    
    
    
    756
    
    
    
    878Babies (1)
    
    
    330
    
    
    
    377
    
    
    
    342Total merchandise inventories
    
    $
    2,193
    
    
    $
    1,998
    
    
    $
    2,090
 (1)
 (2)
 14




---



##### 



9. Litigation and legal proceedings
   
 10. Related party transactions
 Transactions with the Sponsors 
   15




---



##### 



11. Toys  Japan tender offer
 
  
 12. Reorganization
   13. Liquidation of Hong Kong subsidiary and sales of properties
  
 
 16




---



##### 



14. Recent accounting pronouncements
  .
     17




---



##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Our Business
 .
 Financial Performance
  13 Weeks Ended
    
    26 Weeks Ended( $ in millions)
    
    August 2, 2008
    
    August 4, 2007
    
    August 2, 2008
    
    August 4, 2007Net sales growth (versus prior year)
    
    
    6.4%
    
    
    
    7.1%
    
    
    
    5.9%
    
    
    
    7.2%Gross margin as a percentage of Net
sales
    
    
    36.6%
    
    
    
    35.9%
    
    
    
    36.3%
    
    
    
    35.6%Selling, general and administrative
expenses as a
percentage of Net sales
    
    
    31.6%
    
    
    
    31.4%
    
    
    
    31.9%
    
    
    
    31.1%Net earnings (loss)
    
    $
    13
    
    
    $
    (42
    )
    
    $
    (23
    )
    
    $
    (83
    )
     Comparable Store Net Sales
   
    
    Stores that have been remodeled while remaining open;
    
    Stores that have been relocated to new buildings within the same trade area, in which
the new store opens at the same time as the old store closes; and
    
    Stores that have expanded in their current locations.
  18




---



##### 



13 Weeks Ended
    
    
    26 Weeks EndedAugust 2, 2008 vs.
    
    August 4, 2007 vs.
    
    August 2, 2008 vs.
    
    August 4, 2007 vs.Comparable Store Net Sales Performance
    
    2007
    
    2006
    
    2007
    
    2006Toys-U.S
    
    
    5.1%
    
    
    
    1.1%
    
    
    
    2.3%
    
    
    
    3.1%International
    
    
    (0.8)%
    
    
    
    5.9%
    
    
    
    (2.6)%
    
    
    
    4.9%Babies
    
    
    0.7%
    
    
    
    2.2%
    
    
    
    1.3%
    
    
    
    2.5%
 Store Count by Segment
 Segment Store CountAugust 2,
    
    August 4,2008
    
    2007
    
    ChangeToys-U.S. (1)
    
    
    584
    
    
    
    585
    
    
    
    (1
    )International (2)
    
    
    690
    
    
    
    693
    
    
    
    (3
    )Babies
    
    
    262
    
    
    
    255
    
    
    
    7Total
    
    
    1,536
    
    
    
    1,533
    
    
    
    3
 (1)
    
    Included in the Toys-U.S. store count are 40 side-by-side stores and 6 R
superstores as of August 2, 2008. As of August 4,
2007 there were 6 side-by-side stores and no R superstores.(2)
    
    Store count as of August 2, 2008 includes 504 wholly-owned (including 168 in Japan)
and 186 licensed and franchised stores. Store count as of August 4, 2007 includes 494 wholly-owned (including 169 in
Japan) and 199 licensed and franchised stores. Internationals wholly-owned store count includes 49 and 14
side-by-side stores as of August 2, 2008 and August 4, 2007, respectively.
 Net Earnings (Loss)
 13 Weeks Ended
    
    
    26 Weeks EndedAugust 2,
    
    August 4,
    
    
    
    
    
    August 2,
    
    August 4,(In millions)
    
    2008
    
    2007
    
    Change
    
    2008
    
    2007
    
    ChangeNet earnings (loss)
    
    $
    13
    
    
    $
    (42
    )
    
    $
    55
    
    
    $
    (23
    )
    
    $
    (83
    )
    
    $
    60
   19




---



##### 



Net Sales
 13 Weeks EndedPercentage
of Total Net SalesAugust 2,
    
    August 4,
    
    
    
    
    
    
    
    
    
    August 2,
    
    August 4,($ in millions)
    
    2008
    
    2007
    
    $ Change
    
    % Change
    
    2008
    
    2007Toys-U.S.
    
    $
    1,058
    
    
    $
    994
    
    
    $
    64
    
    
    
    6.4
    %
    
    
    38.2
    %
    
    
    38.2
    %International
    
    
    1,085
    
    
    
    998
    
    
    
    87
    
    
    
    8.7
    %
    
    
    39.1
    %
    
    
    38.3
    %Babies
    
    
    628
    
    
    
    613
    
    
    
    15
    
    
    
    2.4
    %
    
    
    22.7
    %
    
    
    23.5
    %Total Net sales
    
    $
    2,771
    
    
    $
    2,605
    
    
    $
    166
    
    
    
    6.4
    %
    
    
    100.0
    %
    
    
    100.0
    %
   26 Weeks EndedPercentage of Total Net SalesAugust 2,
    
    August 4,
    
    
    
    
    
    
    
    
    
    August 2,
    
    August 4,($ in millions)
    
    2008
    
    2007
    
    $ Change
    
    % Change
    
    2008
    
    2007Toys-U.S.
    
    $
    2,094
    
    
    $
    2,018
    
    
    $
    76
    
    
    
    3.8
    %
    
    
    38.2
    %
    
    
    38.9
    %International
    
    
    2,093
    
    
    
    1,906
    
    
    
    187
    
    
    
    9.8
    %
    
    
    38.1
    %
    
    
    36.8
    %Babies
    
    
    1,303
    
    
    
    1,262
    
    
    
    41
    
    
    
    3.2
    %
    
    
    23.7
    %
    
    
    24.3
    %Total Net sales
    
    $
    5,490
    
    
    $
    5,186
    
    
    $
    304
    
    
    
    5.9
    %
    
    
    100.0
    %
    
    
    100.0
    %
   Toys  U.S.
  
   20




---



##### 



International
     Babies
     Cost of Sales and Gross Margin
   
    
    the cost of merchandise acquired from vendors;
    
    freight in;
    
    provision for excess and obsolete inventory;
    
    shipping costs;
    
    provision for inventory shortages; and
    
    credits and allowances from our merchandise vendors.
 21




---



##### 



Gross Margin for the 13 Weeks EndedPercentage of Net SalesAugust 2,
    
    August 4,
    
    
    
    
    
    August 2,
    
    August 4,
    
    Percentage of Net($ in millions)
    
    2008
    
    2007
    
    $ Change
    
    2008
    
    2007
    
    Sales ChangeToys-U.S.
    
    $
    356
    
    
    $
    335
    
    
    $
    21
    
    
    
    33.6
    %
    
    
    33.7
    %
    
    
    (0.1)
    %International
    
    
    408
    
    
    
    365
    
    
    
    43
    
    
    
    37.6
    %
    
    
    36.6
    %
    
    
    1.0
    %Babies
    
    
    250
    
    
    
    236
    
    
    
    14
    
    
    
    39.8
    %
    
    
    38.5
    %
    
    
    1.3
    %Total Gross margin
    
    $
    1,014
    
    
    $
    936
    
    
    $
    78
    
    
    
    36.6
    %
    
    
    35.9
    %
    
    
    0.7
    %
   Gross Margin for the 26 Weeks EndedPercentage of Net SalesAugust 2,
    
    August 4,
    
    
    
    
    
    August 2,
    
    August 4,
    
    Percentage of Net($ in millions)
    
    2008
    
    2007
    
    $ Change
    
    2008
    
    2007
    
    Sales ChangeToys-U.S.
    
    $
    699
    
    
    $
    674
    
    
    $
    25
    
    
    
    33.4
    %
    
    
    33.4
    %
    
    
    -International
    
    
    770
    
    
    
    679
    
    
    
    91
    
    
    
    36.8
    %
    
    
    35.6
    %
    
    
    1.2
    %Babies
    
    
    522
    
    
    
    492
    
    
    
    30
    
    
    
    40.1
    %
    
    
    39.0
    %
    
    
    1.1
    %Total Gross margin
    
    $
    1,991
    
    
    $
    1,845
    
    
    $
    146
    
    
    
    36.3
    %
    
    
    35.6
    %
    
    
    0.7
    %
   Toys  U.S.
    International
  22




---



##### 



Babies
      Selling, General and Administrative Expenses (SG&A)
  
    
    store payroll and related payroll benefits;
    
    rent and other store operating expenses,
    
    advertising expenses;
    
    costs associated with operating our distribution network, including costs related to
moving merchandise from distribution centers to stores;
    
    impairment loss on long-lived assets;
    
    other corporate-related expenses; and
    
    other income.
 13 Weeks EndedPercentage of Net SalesAugust 2,
    
    August 4,
    
    
    
    
    
    August 2,
    
    August 4,
    
    Percentage of Net($ in millions)
    
    2008
    
    2007
    
    $ Change
    
    2008
    
    2007
    
    Sales ChangeToys
R Us - Consolidated
    
    $
    875
    
    
    $
    819
    
    
    $
    56
    
    
    
    31.6
    %
    
    
    31.4
    %
    
    
    0.2
    %
   23




---



##### 



26 Weeks EndedPercentage of Net SalesAugust 2,
    
    August 4,
    
    
    
    
    
    August 2,
    
    August 4,
    
    Percentage of Net($ in millions)
    
    2008
    
    2007
    
    $ Change
    
    2008
    
    2007
    
    Sales ChangeToys
R Us - Consolidated
    
    $
    1,750
    
    
    $
    1,613
    
    
    $
    137
    
    
    
    31.9
    %
    
    
    31.1
    %
    
    
    0.8
    %
   Depreciation and Amortization
 13 Weeks Ended
    
    26 Weeks EndedAugust 2,
    
    August 4,
    
    
    
    
    
    August 2,
    
    August 4,(In millions)
    
    2008
    
    2007
    
    Change
    
    2008
    
    2007
    
    ChangeToys
R Us - Consolidated
    
    $
    103
    
    
    $
    101
    
    
    $
    2
    
    
    $
    203
    
    
    $
    197
    
    
    $
    6
  Net gains on sales of properties
 13 Weeks Ended
    
    26 Weeks EndedAugust 2,
    
    August 4,
    
    
    
    
    
    August 2,
    
    August 4,(In millions)
    
    2008
    
    2007
    
    Change
    
    2008
    
    2007
    
    ChangeToys
R Us - Consolidated
    
    $
    4
    
    
    $
    12
    
    
    $
    (8
    )
    
    $
    4
    
    
    $
    16
    
    
    $
    (12
    )
  Interest Expense
 13 Weeks Ended
    
    26 Weeks EndedAugust 2,
    
    August 4,
    
    
    
    
    
    August 2,
    
    August 4,(In millions)
    
    2008
    
    2007
    
    Change
    
    2008
    
    2007
    
    ChangeToys
R Us - Consolidated
    
    $
    100
    
    
    $
    120
    
    
    $
    (20
    )
    
    $
    200
    
    
    $
    242
    
    
    $
    (42
    )
   24




---



##### 



Interest Income
 13 Weeks Ended
    
    26 Weeks EndedAugust 2,
    
    August 4,
    
    
    
    
    
    August 2,
    
    August 4,(In millions)
    
    2008
    
    2007
    
    Change
    
    2008
    
    2007
    
    ChangeToys
R Us - Consolidated
    
    $
    4
    
    
    $
    4
    
    
    $
    -
    
    
    $
    11
    
    
    $
    12
    
    
    $
    (1
    )
  Income tax benefit
  13 Weeks Ended
    
    26 Weeks EndedAugust 2,
    
    August 4,
    
    August 2,
    
    August 4,($ in millions)
    
    2008
    
    2007
    
    2008
    
    2007Loss before income taxes and minority interest
    
    $
    (17)
    
    
    $
    (88)
    
    
    $
    (108)
    
    
    $
    (179)Income tax benefit
    
    
    26
    
    
    
    45
    
    
    
    70
    
    
    
    89Effective tax rate
    
    
    (152.9)%
    
    
    
    (51.1)%
    
    
    
    (64.8)%
    
    
    
    (49.7)%
    Liquidity and Capital Resources
 Overview
 
 25




---



##### 



26 Weeks EndedAugust 2,
    
    August 4,($ in millions)
    
    2008
    
    2007
    
    $ Change
    
    % ChangeNet cash used in operating activities
    
    $
    (485
    )
    
    $
    (635
    )
    
    $
    150
    
    
    
    23.6
    %Net cash used in investing activities
    
    
    (14
    )
    
    
    (64
    )
    
    
    50
    
    
    
    78.1
    %Net cash provided by financing activities
    
    
    121
    
    
    
    155
    
    
    
    (34
    )
    
    
    (21.9)
    %Effect of exchange rate changes on cash and cash equivalents
    
    
    14
    
    
    
    9
    
    
    
    5
    
    
    
    55.6
    %Net decrease during period in cash and cash equivalents
    
    $
    (364
    )
    
    $
    (535
    )
    
    $
    171
    
    
    
    32.0
    %
 Cash Flows Used in Operating Activities
  Cash Flows Used in Investing Activities
  
 Cash Flows Provided by Financing Activities
  Debt
   26




---



##### 



Contractual Obligations and Commitments
  Credit Ratings
  Moody's
    
    Standard and Poor'sLong-term debt
    
    B2
    
    BOutlook
    
    Stable
    
    Stable
    Critical Accounting Policies
  Merchandise Inventories
  Fair Value Measurements
  27




---



##### 



Recent Accounting Pronouncements
  Forward-Looking Statements
   
 Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
 Foreign Exchange Exposure
 Interest Rate
Exposure
  Interest Rate Exposure
   
 28




---



##### 



Item 4.
    
    Controls and Procedures
 Disclosure Controls and Procedures
   Changes in Internal Control over Financial Reporting
  29




---



##### 



PART II  OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
  
 
 Item 1A.
    
    Risk Factors
  
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3.
    
    Defaults Upon Senior Securities
  
 Item 4.
    
    Submission of Matters to a Vote of Security Holders
  
 Item 5.
    
    Other Information
  
 Item 6.
    
    Exhibits
  30




---



##### 



SIGNATURE
  TOYS R US, INC.(Registrant)Date: September 10, 2008
    
    /s/ F.
Clay Creasey, Jr.F. Clay Creasey, Jr.Executive Vice President  Chief Financial Officer
 31




---



##### 



INDEX TO EXHIBITS
  Exhibit No.
    
    Description2.1
    
    Reorganization Agreement, dated June 10, 2008, by and between
the Registrant and Toys R Us Holdings, Inc. (filed as
Exhibit 2.1 to the Registrants Quarterly Report on Form 10-Q,
filed on June 10, 2008 and incorporated herein by reference).3.1
    
    Amendment No. 1 to the Restated Certificate of Incorporation
of the Registrant filed with the Secretary of State of the
State of Delaware on June 10, 2008 (filed as Exhibit 3.1 to
the Registrants Quarterly Report on Form 10-Q, filed on June
10, 2008 and incorporated herein by reference).3.2
    
    Amended and Restated Certificate of Incorporation of the
Registrant filed with the Secretary of State of the State of
Delaware on June 10, 2008 (filed as Exhibit 3.2 to the
Registrants Quarterly Report on Form 10-Q, filed on June 10,
2008 and incorporated herein by reference).3.3
    
    Amended and Restated By-Laws of the Registrant, dated June 10,
2008 (filed as Exhibit 3.3 to the Registrants Quarterly
Report on Form 10-Q, filed on June 10, 2008 and incorporated
herein by reference).10.1
    
    Amendment No. 1, dated June 10, 2008, to the Amended and
Restated Toys R Us Holdings, Inc. 2005 Management Equity
Plan, (subsequently assumed by the Registrant), adopted on
August 3, 2007 (filed as Exhibit 10.1 to the Registrants
Quarterly Report on Form 10-Q, filed on June 10, 2008 and
incorporated herein by reference).10.2
    
    Stockholders Agreement among Toys R Us Holdings, Inc.
(subsequently assumed by the Registrant), Funds managed by
Bain Capital Partners, LLC or its Affiliates, Toybox Holdings
LLC and Vornado Truck LLC and certain other persons, dated as
of July 21, 2005 (filed as Exhibit 10.2 to the Registrants
Quarterly Report on Form 10-Q, filed on June 10, 2008 and
incorporated herein by reference).10.3
    
    Amendment No. 1, dated June 10, 2008, to the Stockholders
Agreement among Toys R Us Holdings, Inc. (subsequently
assumed by the Registrant), Funds managed by Bain Capital
Partners, LLC or its Affiliates, Toybox Holdings LLC and
Vornado Truck LLC and certain other persons, dated as of July
21, 2005 (filed as Exhibit 10.3 to the Registrants Quarterly
Report on Form 10-Q, filed on June 10, 2008 and incorporated
herein by reference).10.4
    
    Amendment No. 1, dated June 10, 2008, to the Advisory
Agreement among the Registrant, Toys R Us Holdings, Inc.,
Bain Capital Partners, LLC, Bain Capital, Ltd., Kohlberg
Kravis Roberts & Co., L.P. and Vornado Truck LLC, dated as of
July 21, 2005 (filed as Exhibit 10.4 to the Registrants
Quarterly Report on Form 10-Q, filed on June 10, 2008 and
incorporated herein by reference).31.1
    
    Certification of Chief Executive 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 2002.31.2
    
    Certification of Chief 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 Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 32