##### Table of Contents



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 November 3, 2007
 Commission file number 1-11609
 
 
 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 Way Wayne, New Jersey
    
    07470(Address
of principal executive offices)
    

(Zip
code)
 (973) 617-3500
 (Registrants telephone number, including area code)
 
 þ o
  o o þ
 o þ




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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 November 3, 2007, February 3, 2007, and
October 28, 2006 (As restated)
    
    
    3Condensed Consolidated Statements of Operations for the thirteen and thirty-nine
weeks ended November 3, 2007 and October 28, 2006
    
    
    4Condensed Consolidated Statements of Cash Flows for the thirty-nine weeks ended
November 3, 2007 and October 28, 2006
    
    
    5Condensed Consolidated Statement of Stockholders Deficit for the thirty-nine weeks
ended November 3, 2007
    
    
    6Notes to the Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    34Item 4. Controls and Procedures
    
    
    34PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    36Item 1A. Risk Factors
    
    
    36Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    36Item 3. Defaults Upon Senior Securities
    
    
    36Item 4. Submission of Matters to a Vote of Security Holders
    
    
    36Item 5. Other Information
    
    
    36Item 6. Exhibits
    
    
    36SIGNATURE
    
    
    37INDEX TO EXHIBITS
    
    
    38EX-3.3: AMENDED AND RESTATED CERTIFICATE OF INCORPORATIONEX-10.1: AMENDED AND RESTATED 2005 MANAGEMENT EQUITY PLANEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 TOYS R US, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 (In millions)
 November 3,
    
    
    February 3,
    
    
    October 28,2007
    
    
    2007
    
    
    2006(As restated)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    240
    
    
    $
    765
    
    
    $
    393Accounts and other receivables
    
    
    179
    
    
    
    230
    
    
    
    142Merchandise inventories
    
    
    3,308
    
    
    
    1,690
    
    
    
    3,073Income tax receivable
    
    
    144
    
    
    
    
    
    
    
    Current deferred tax assets
    
    
    77
    
    
    
    43
    
    
    
    130Prepaid expenses and other current assets
    
    
    159
    
    
    
    129
    
    
    
    137Total current assets
    
    
    4,107
    
    
    
    2,857
    
    
    
    3,875Property and equipment, net
    
    
    4,391
    
    
    
    4,333
    
    
    
    4,331Goodwill, net
    
    
    365
    
    
    
    365
    
    
    
    365Deferred tax assets
    
    
    146
    
    
    
    95
    
    
    
    125Restricted cash
    
    
    126
    
    
    
    148
    
    
    
    151Other assets
    
    
    497
    
    
    
    497
    
    
    
    518$
    9,632
    
    
    $
    8,295
    
    
    $
    9,365LIABILITIES AND STOCKHOLDERS DEFICITCurrent Liabilities:Short-term borrowings
    
    $
    243
    
    
    $
    151
    
    
    $
    285Accounts payable
    
    
    2,113
    
    
    
    1,303
    
    
    
    1,619Accrued expenses and other current liabilities
    
    
    900
    
    
    
    848
    
    
    
    775Income taxes payable
    
    
    8
    
    
    
    142
    
    
    
    125Current portion of long-term debt
    
    
    48
    
    
    
    66
    
    
    
    65Total current liabilities
    
    
    3,312
    
    
    
    2,510
    
    
    
    `             2,869Long-term debt
    
    
    6,265
    
    
    
    5,722
    
    
    
    6,716Deferred tax liabilities
    
    
    34
    
    
    
    74
    
    
    
    29Deferred rent liabilities
    
    
    257
    
    
    
    248
    
    
    
    258Other non-current liabilities
    
    
    371
    
    
    
    282
    
    
    
    265Minority interest in Toys R Us Japan
    
    
    130
    
    
    
    134
    
    
    
    131Stockholders deficit
    
    
    (737
    )
    
    
    (675
    )
    
    
    (903
    )$
    9,632
    
    
    $
    8,295
    
    
    $
    9,365
  3




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TOYS R US, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 (In millions)
 13 Weeks Ended
    
    
    39 Weeks EndedNovember 3,
    
    
    October 28,
    
    
    November 3,
    
    
    October 28,2007
    
    
    2006
    
    
    2007
    
    
    2006Net sales
    
    $
    2,781
    
    
    $
    2,534
    
    
    $
    7,967
    
    
    $
    7,371Cost of sales
    
    
    1,804
    
    
    
    1,673
    
    
    
    5,145
    
    
    
    4,813Gross margin
    
    
    977
    
    
    
    861
    
    
    
    2,822
    
    
    
    2,558Selling, general and administrative expenses
    
    
    924
    
    
    
    802
    
    
    
    2,536
    
    
    
    2,280Depreciation and amortization
    
    
    94
    
    
    
    92
    
    
    
    291
    
    
    
    305Net gains on sales of properties
    
    
    (18
    )
    
    
    (109
    )
    
    
    (34
    )
    
    
    (109
    )Restructuring charges (reversals) and other
    
    
    3
    
    
    
    (1
    )
    
    
    4
    
    
    
    4Total operating expenses
    
    
    1,003
    
    
    
    784
    
    
    
    2,797
    
    
    
    2,480Operating (loss) earnings
    
    
    (26
    )
    
    
    77
    
    
    
    25
    
    
    
    78Other (expense) income:Interest expense
    
    
    (136
    )
    
    
    (141
    )
    
    
    (378
    )
    
    
    (401
    )Interest income
    
    
    3
    
    
    
    4
    
    
    
    15
    
    
    
    17Loss before income taxes and minority interest
    
    
    (159
    )
    
    
    (60
    )
    
    
    (338
    )
    
    
    (306
    )Income tax benefit
    
    
    81
    
    
    
    94
    
    
    
    170
    
    
    
    183Minority interest
    
    
    2
    
    
    
    7
    
    
    
    9
    
    
    
    8Net (loss) income
    
    $
    (76
    )
    
    $
    41
    
    
    $
    (159
    )
    
    $
    (115
    )
  4




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TOYS R US, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 (In millions)
 39 Weeks EndedNovember 3,
    
    
    October 28,2007
    
    
    2006Cash Flows from Operating Activities:Net loss
    
    $
    (159
    )
    
    $
    (115
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    291
    
    
    
    305Gains on sales of properties
    
    
    (34
    )
    
    
    (109
    )Amortization of debt issuance costs
    
    
    23
    
    
    
    50Deferred income taxes
    
    
    (58
    )
    
    
    (197
    )Other
    
    
    8
    
    
    
    3Changes in operating assets and liabilities:Accounts and other receivables
    
    
    67
    
    
    
    106Merchandise inventories
    
    
    (1,575
    )
    
    
    (1,366
    )Prepaid expenses and other operating assets
    
    
    (28
    )
    
    
    (34
    )Accounts payable
    
    
    746
    
    
    
    264Accrued expenses and other liabilities
    
    
    (73
    )
    
    
    (113
    )Income taxes payable and receivable
    
    
    (154
    )
    
    
    (32
    )Net cash used in operating activities
    
    
    (946
    )
    
    
    (1,238
    )Cash Flows from Investing Activities:Capital expenditures
    
    
    (218
    )
    
    
    (170
    )Decrease (increase) in restricted cash
    
    
    22
    
    
    
    (44
    )Acquisition of minority interest in Toysrus.com
    
    
    
    
    
    
    (6
    )Cash effect of the consolidation of Toys R Us-Japan
    
    
    
    
    
    
    6Proceeds from sale of fixed assets
    
    
    56
    
    
    
    217Net cash (used in) provided by investing activities
    
    
    (140
    )
    
    
    3Cash Flows from Financing Activities:Long-term debt borrowings
    
    
    760
    
    
    
    3,298Short-term debt borrowings
    
    
    199
    
    
    
    126Long-term debt repayment
    
    
    (330
    )
    
    
    (2,743
    )Short-term debt repayment
    
    
    (115
    )
    
    
    (25
    )Dividend paid to Toys R Us-Japan minority interest
    
    
    (1
    )
    
    
    (5
    )Capitalized debt issuance costs
    
    
    
    
    
    
    (42
    )Net cash provided by financing activities
    
    
    513
    
    
    
    609Effect of exchange rate changes on cash and cash equivalents
    
    
    48
    
    
    
    38Cash and cash equivalents:Net decrease during period
    
    
    (525
    )
    
    
    (588
    )Cash and cash equivalents at beginning of period
    
    
    765
    
    
    
    981Cash and cash equivalents at end of period
    
    $
    240
    
    
    $
    393
  5




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TOYS R US, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS DEFICIT
 (Unaudited)
 (In millions)
 AccumulatedCommon Stock
    
    
    
    
    
    
    other
    
    
    
    
    
    
    TotalIssued (1)
    
    
    Additional
    
    
    comprehensive
    
    
    Retained
    
    
    stockholders($ in millions)
    
    Shares
    
    
    Amount
    
    
    paid-in capital
    
    
    loss
    
    
    deficit
    
    
    deficitBalance, February 3, 2007
    
    
    
    
    
    $
    
    
    
    $
    4
    
    
    $
    (95
    )
    
    $
    (584
    )
    
    $
    (675
    )Cumulative effect of change in
accounting principle, net of tax
(Note 3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9
    )
    
    
    (9
    )Cumulative effect of adoption of
FIN 48 (Note 6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    21Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (159
    )
    
    
    (159
    )Unrealized loss on hedged
transactions, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )Minimum pension liability
adjustment, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )Foreign currency translation
adjustments, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    83
    
    
    
    
    
    
    
    83Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    4Balance, November 3, 2007
    
    
    
    
    
    $
    
    
    
    $
    8
    
    
    $
    (14
    )
    
    $
    (731
    )
    
    $
    (737
    )
 
 (1)
    
    $0.01 par value; authorized 3,000 shares, outstanding 1,000 shares.  6




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TOYS R US, INC. AND SUBSIDIARIES
 
 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 1. Basis of presentation
       7




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October 28, 2006Previously
    
    As(In millions)
    
    reported
    
    adjusted(1)Deferred tax assets
    
    $
    610
    
    
    $
    125Income taxes payable
    
    
    107
    
    
    
    125Stockholders deficit
    
    
    (878
    )
    
    
    (903
    )
 
 (1)
    
    As adjusted amounts include the impact of the restatement (See Note 13 entitled Restatement of previously issued financial statements) and the adoption of SAB 108. 13 Weeks Ended
    
    39 Weeks EndedOctober 28, 2006
    
    October 28, 2006Previously
    
    As
    
    Previously(In millions)
    
    reported
    
    adjusted
    
    reported
    
    As adjustedIncome tax benefit
    
    $
    
    82
    
    $
    
    94
    
    $
    184
    
    
    $
    183Net (loss) income
    
    
    
    29
    
    
    
    41
    
    
    (114
    )
    
    
    (115
    )
  8




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2. Restructuring and other charges
  13 weeks ended
    
    
    39 weeks endedNovember 3,
    
    
    October 28,
    
    
    November 3,
    
    
    October 28,(In millions)
    
    2007
    
    
    2006
    
    
    2007
    
    
    20062005 initiativeRestructuring charges (reversals) and other
    
    $
    1
    
    
    $
    (4
    )
    
    $
    2
    
    
    $
    2Depreciation and amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24Cost of sales
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3Total charges related to 2005 initiative
    
    $
    1
    
    
    $
    (4
    )
    
    $
    2
    
    
    $
    292003 and prior years initiativesRestructuring charges and other
    
    $
    2
    
    
    $
    3
    
    
    $
    2
    
    
    $
    2Total charges related to 2003 and prior years initiatives
    
    $
    2
    
    
    $
    3
    
    
    $
    2
    
    
    $
    2Total
    
    $
    3
    
    
    $
    (1
    )
    
    $
    4
    
    
    $
    31
     November 3,
    
    
    February 3,
    
    
    October 28,(In millions)
    
    2007
    
    
    2007
    
    
    20062005 initiative
    
    $
    10
    
    
    $
    11
    
    
    $
    102003 and prior years initiatives
    
    
    51
    
    
    
    63
    
    
    
    67Total
    
    $
    61
    
    
    $
    74
    
    
    $
    77
  2005 initiative
   9




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Asset
    
    
    
    
    
    
    Inventory
    
    
    Accelerated(In millions)
    
    Lease commitments
    
    
    impairment
    
    
    Severance
    
    
    markdowns
    
    
    depreciation
    
    
    TotalBeginning balance at February 3, 2007
    
    $
    11
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    11Charges
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3Reversals
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )Utilized
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )Ending balance at November 3, 2007
    
    $
    10
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    10Beginning balance at January 28, 2006
    
    $
    1
    
    
    $
    
    
    
    $
    8
    
    
    $
    34
    
    
    $
    
    
    
    $
    43Charges
    
    
    5
    
    
    
    1
    
    
    
    
    
    
    
    3
    
    
    
    24
    
    
    
    33Reversals
    
    
    (3
    )
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    (4
    )Utilized
    
    
    (6
    )
    
    
    (1
    )
    
    
    (6
    )
    
    
    (37
    )
    
    
    (24
    )
    
    
    (74
    )Reclassification (1)
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12Ending balance at October 28, 2006
    
    $
    9
    
    
    $
    
    
    
    $
    1
    
    
    $
    
    
    
    $
    
    
    
    $
    10
 
 (1)
 2003 and prior years initiatives
   2003
    
    
    2001
    
    
    1998 and(In millions)
    
    initiative
    
    
    initiative
    
    
    1995
    
    
    TotalBeginning balance at February 3, 2007
    
    $
    4
    
    
    $
    43
    
    
    $
    16
    
    
    $
    63Charges
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4Reversals
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (2
    )Utilized
    
    
    (2
    )
    
    
    (8
    )
    
    
    (4
    )
    
    
    (14
    )Ending balance at November 3, 2007
    
    $
    2
    
    
    $
    39
    
    
    $
    10
    
    
    $
    51Beginning balance at January 28, 2006
    
    $
    8
    
    
    $
    51
    
    
    $
    22
    
    
    $
    81Charges
    
    
    3
    
    
    
    1
    
    
    
    
    
    
    
    4Reversals
    
    
    (1
    )
    
    
    (1
    )
    
    
    
    
    
    
    (2
    )Utilized
    
    
    (5
    )
    
    
    (7
    )
    
    
    (4
    )
    
    
    (16
    )Ending balance at October 28, 2006
    
    $
    5
    
    
    $
    44
    
    
    $
    18
    
    
    $
    67
 10




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3. Change in accounting principle
     Condensed Consolidated Balance Sheet
 Increase (decrease)(In millions)
    
    
    
    
    
    
    
    
    
    from change inAs of November 3, 2007
    
    As reported
    
    
    Pro forma
    
    
    accounting(1)Merchandise inventories
    
    $
    3,308
    
    
    $
    3,310
    
    
    $
    (2
    )Total current assets
    
    
    4,107
    
    
    
    4,109
    
    
    
    (2
    )Total assets
    
    
    9,632
    
    
    
    9,634
    
    
    
    (2
    )Stockholders deficit
    
    
    (737
    )
    
    
    (735
    )
    
    
    (2
    )Total liabilities and stockholders deficit
    
    
    9,632
    
    
    
    9,634
    
    
    
    (2
    )
 
 (1)
    
    Includes the cumulative effect of the change in accounting principle. 11




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Increase (decrease)(In millions)
    
    
    
    
    
    
    
    
    
    from change inFor the 39 Weeks Ended November 3, 2007
    
    As reported
    
    
    Pro forma
    
    
    accountingCost of sales
    
    $
    5,145
    
    
    $
    5,156
    
    
    $
    (11
    )Gross margin
    
    
    2,822
    
    
    
    2,811
    
    
    
    11Operating earnings
    
    
    25
    
    
    
    14
    
    
    
    11Loss before income taxes and minority interest
    
    
    (338
    )
    
    
    (349
    )
    
    
    11Income tax benefit
    
    
    170
    
    
    
    174
    
    
    
    (4
    )Net loss
    
    
    (159
    )
    
    
    (166
    )
    
    
    7
 12




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4. Short-term borrowings and long-term debt
  November 3,
    
    
    February 3,
    
    
    October 28,(In millions)
    
    2007
    
    
    2007
    
    
    2006Short-term borrowingsToys R Us Japan, Ltd. 0.75%-0.89% short-term bank loans due fiscal 2007
    
    $
    243
    
    
    $
    151
    
    
    $
    285Long-term debtNote at an effective cost of 2.23% due in semi-annual installments through February 20, 2008
    
    
    19
    
    
    
    49
    
    
    
    50LIBOR plus 3.00%-4.00% asset sale facility, due July 19, 2008
    
    
    
    
    
    
    44
    
    
    
    44LIBOR plus
1.30% secured real estate loan, due August 9, 2008
(a)
    
    
    800
    
    
    
    800
    
    
    
    800LIBOR plus 3.00% unsecured credit agreement, due December 9, 2008 (b)
    
    
    1,300
    
    
    
    1,300
    
    
    
    1,300LIBOR plus 1.50%-2.00% multi-currency revolving credit facility, expires fiscal 2010
    
    
    28
    
    
    
    
    
    
    
    190LIBOR plus 1.00%-3.75% $2.0 billion secured revolving credit facility, expires fiscal 2010
    
    
    489
    
    
    
    
    
    
    
    8367.625% notes, due fiscal 2011 (c)
    
    
    518
    
    
    
    522
    
    
    
    523LIBOR plus 4.25% secured term loan facility, due fiscal 2012
    
    
    797
    
    
    
    800
    
    
    
    800LIBOR plus 5.00% unsecured credit facility, due fiscal 2012
    
    
    180
    
    
    
    180
    
    
    
    EURIBOR plus 1.50% French real estate credit facility, due fiscal 2012
    
    
    93
    
    
    
    84
    
    
    
    82EURIBOR plus 1.50% Spanish real estate credit facility, due fiscal 2012
    
    
    193
    
    
    
    173
    
    
    
    1715.02% U.K. real estate credit facility, due fiscal 2013
    
    
    741
    
    
    
    700
    
    
    
    675LIBOR plus 2.25% U.K. real estate credit facility, due fiscal 2013
    
    
    132
    
    
    
    121
    
    
    
    1187.875% notes, due fiscal 2013 (c)
    
    
    392
    
    
    
    391
    
    
    
    390Toys R Us-Japan, Ltd. 1.20%-2.80% loans due fiscal 2007-2020
    
    
    161
    
    
    
    152
    
    
    
    1567.375% notes, due fiscal 2018 (c)
    
    
    407
    
    
    
    408
    
    
    
    4088.75% debentures, due fiscal 2021 (d)
    
    
    22
    
    
    
    22
    
    
    
    199Capital leases and other
    
    
    41
    
    
    
    42
    
    
    
    396,313
    
    
    
    5,788
    
    
    
    6,781Less current portion
    
    
    48
    
    
    
    66
    
    
    
    65Total long-term debt
    
    $
    6,265
    
    
    $
    5,722
    
    
    $
    6,716
 
 (a)
    
    We have classified this loan as long-term debt because we have the contractual
ability and intent to extend the due date to August 9, 2010.(b)
    
    We have the contractual ability and intent to extend the due date to December 7,
2010.(c)
    
    Represents obligations of the Toys R Us, Inc. legal entity.(d)
    
    Represents obligations of Toys R Us, Inc. and our subsidiary Toys R Us-Delaware,
Inc. (Toys-Delaware).  Borrowing availability
  Secured real estate loan, due August 9, 2008 ($800 million at November 3, 2007)
  13




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##### Table of Contents



Asset sale facility, due July 19, 2008 ($0 at November 3, 2007)
  Secured term loan facility, due fiscal 2012 ($797 million at November 3, 2007)
  U.K. real estate credit facility, due fiscal 2013 ($741 million at November 3, 2007)
  U.K. real estate credit facility, due fiscal 2013 ($132 million at November 3, 2007)
  Guarantees
  5. Derivative instruments and hedging activities
   14




---



##### Table of Contents



Secured real estate loan, due August 9, 2008 ($800 million at November 3, 2007)
  Unsecured credit facility, due fiscal 2012 ($180 million at November 3, 2007)
  U.K. real estate credit facility, due fiscal 2013 ($132 million at November 3, 2007)
 6. Income taxes
  13 Weeks Ended
    
    39 Weeks EndedNovember 3,
    
    
    October 28,
    
    
    November 3,
    
    
    October 28,($ in millions)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Loss before income taxes and minority interest
    
    $
    (159
    )
    
    $
    (60
    )
    
    $
    (338
    )
    
    $
    (306
    )Income tax benefit
    
    
    81
    
    
    
    94
    
    
    
    170
    
    
    
    183Effective tax rate
    
    
    (50.9
    )%
    
    
    (156.7
    )%
    
    
    (50.3
    )%
    
    
    (59.8
    )%
     15




---



##### Table of Contents



7.
Comprehensive (loss) income
  13 Weeks Ended
    
    
    39 Weeks EndedNovember 3,
    
    
    October 28,
    
    
    November 3,
    
    
    October 28,(In millions)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Net (loss) income
    
    $
    (76
    )
    
    $
    41
    
    
    $
    (159
    )
    
    $
    (115
    )Foreign currency translation adjustments, net of tax
    
    
    49
    
    
    
    (16
    )
    
    
    83
    
    
    
    (36
    )Unrealized loss on hedged transactions, net of tax
    
    
    (1
    )
    
    
    (5
    )
    
    
    (1
    )
    
    
    (7
    )Minimum pension liability adjustment, net of tax
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )
    
    
    Comprehensive
(loss) income
    
    $
    (29
    )
    
    $
    20
    
    
    $
    (78
    )
    
    $
    (158
    )
 8. Segments
  16




---



##### Table of Contents



13 Weeks Ended
    
    
    39 Weeks EndedNovember 3,
    
    
    October 28,
    
    
    November 3,
    
    
    October 28,(In millions)
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Net salesToys
R Us  U.S.
    
    $
    1,040
    
    
    $
    986
    
    
    $
    3,058
    
    
    $
    2,981Toys R Us  International
    
    
    1,107
    
    
    
    948
    
    
    
    3,013
    
    
    
    2,630Babies R Us
    
    
    634
    
    
    
    600
    
    
    
    1,896
    
    
    
    1,760Total net sales
    
    $
    2,781
    
    
    $
    2,534
    
    
    $
    7,967
    
    
    $
    7,371Operating (loss) earningsToys
R Us  U.S.
    
    $
    (95
    )
    
    $
    (54
    )
    
    $
    (91
    )
    
    $
    (63
    )Toys R Us  International
    
    
    37
    
    
    
    (6
    )
    
    
    31
    
    
    
    (18
    )Babies R Us
    
    
    93
    
    
    
    87
    
    
    
    275
    
    
    
    243Corporate and other charges
    
    
    (76
    )
    
    
    (60
    )
    
    
    (220
    )
    
    
    (189
    )Net gains on sales of properties
    
    
    18
    
    
    
    109
    
    
    
    34
    
    
    
    109Restructuring and other charges
    
    
    (3
    )
    
    
    1
    
    
    
    (4
    )
    
    
    (4
    )Operating (loss) earnings
    
    
    (26
    )
    
    
    77
    
    
    
    25
    
    
    
    78Interest expense
    
    
    (136
    )
    
    
    (141
    )
    
    
    (378
    )
    
    
    (401
    )Interest income
    
    
    3
    
    
    
    4
    
    
    
    15
    
    
    
    17Loss before income taxes and minority interest
    
    $
    (159
    )
    
    $
    (60
    )
    
    $
    (338
    )
    
    $
    (306
    )
 November 3,
    
    
    February 3,
    
    
    October 28,(In millions)
    
    2007
    
    
    2007
    
    
    2006Merchandise inventoriesToys
R Us  U.S.
    
    $
    1,663
    
    
    $
    716
    
    
    $
    1,631Toys
R Us  International
(1)
    
    
    1,260
    
    
    
    637
    
    
    
    1,104Babies R Us
    
    
    385
    
    
    
    337
    
    
    
    338Total merchandise inventories
    
    $
    3,308
    
    
    $
    1,690
    
    
    $
    3,073
 
 (1)
    
    Refer to Note 3 Condensed Consolidated Financial Statement entitled Change in accounting principle for the
impact of the change in accounting method for valuing our international subsidiaries inventories. 9. Litigation and legal proceedings
    17




---



##### Table of Contents



10. Net gains on sales of properties
     11. Related party transactions
 Transactions with the Sponsors
    Equity restructuring
  18




---



##### Table of Contents



12. Recent accounting pronouncements
      19




---



##### Table of Contents



13. Restatement of previously issued financial statements
   (In millions)
    
    PreviouslyAs of October 28, 2006
    
    reported
    
    Adjustments
    
    As restated(1)Prepaid expenses, derivative assets and other
current assets (2)
    
    $
    315
    
    
    $
    (59
    )
    
    $
    256Total current assets
    
    
    3,934
    
    
    
    (59
    )
    
    
    3,875Deferred tax assets
    
    
    610
    
    
    
    (478
    )
    
    
    132Total assets
    
    
    9,909
    
    
    
    (537
    )
    
    
    9,372Accrued expenses and other current liabilities
    
    
    834
    
    
    
    (59
    )
    
    
    775Total current liabilities
    
    
    2,910
    
    
    
    (59
    )
    
    
    2,851Deferred tax liabilities
    
    
    507
    
    
    
    (478
    )
    
    
    29Total liabilities and stockholders deficit
    
    
    9,909
    
    
    
    (537
    )
    
    
    9,372
 
 (1)
    
    As restated amounts do not include the impact of the adoption of SAB 108. Refer to
Note 1 to the Condensed Consolidated Financial Statements entitled Basis of presentation for the
combined impact of the restatement and the adoption of SAB 108.(2)
    
    Previously reported as a single line in our Quarterly Report on Form 10-Q Condensed
Consolidated Balance Sheet. However, our current Condensed Consolidated Balance Sheet as of
October 28, 2006 presents separately $130 million of Current deferred tax assets and $137 million
of Prepaid expenses and other current assets (which includes $11 million of assets held for sale),
as restated and adjusted for SAB 108.  20




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Our Business
  Restatement of Previously Issued Financial Statements
  Adoption of SAB 108
  Financial Performance
  13 Weeks Ended
    
    
    39 Weeks Ended($ in millions)
    
    November 3, 2007
    
    
    October 28, 2006
    
    
    November 3, 2007
    
    
    October 28, 2006Net sales growth
versus prior
year
    
    
    9.7
    %
    
    
    16.8
    %
    
    
    8.1
    %
    
    
    14.7
    %Gross margin as a
percentage of Net
sales
    
    
    35.1
    %
    
    
    34.0
    %
    
    
    35.4
    %
    
    
    34.7
    %Selling, general
and administrative
expenses as a
percentage of Net
sales
    
    
    33.2
    %
    
    
    31.6
    %
    
    
    31.8
    %
    
    
    30.9
    %Net (loss)
income
    
    $
    (76
    )
    
    $
    41
    
    
    $
    (159
    )
    
    $
    (115
    )
  21




---



##### Table of Contents



Comparable Store Net Sales
     13 Weeks Ended
    
    39 Weeks EndedNovember 3, 2007
    
    October 28, 2006 vs.
    
    November 3, 2007
    
    October 28, 2006 vs.Comparable
Store Net Sales Performance(1)
    
    vs. 2006
    

2005(3)
    
    vs. 2006
    

2005(3)Toys
R Us  U.S.
    
    
    (2.2
    )%
    
    
    0.4
    %
    
    
    1.2
    %
    
    
    (2.3
    )%Toys R Us  International(2)
    
    
    2.0
    %
    
    
    5.3
    %
    
    
    3.8
    %
    
    
    2.9
    %Babies R Us
    
    
    1.2
    %
    
    
    6.2
    %
    
    
    2.1
    %
    
    
    5.5
    %
 
 (1)
    
    Measures the variances between the thirteen and thirty-nine weeks ended November 3, 2007 and the thirteen and thirty-nine weeks ended November 4, 2006.(2)
    
    Includes wholly-owned operations. Toys-Japan is considered a wholly-owned operation
beginning fiscal 2006. The inclusion of Toys-Japan reduced comparable store net sales for International by 4.5 and 3.8 percentage points for
the thirteen and thirty-nine weeks ended November 3, 2007, respectively.(3)
    
    Comparable store net sales performance for the thirteen and thirty-nine weeks
ended October 28, 2006, as compared to the same periods in fiscal 2005, excludes
the operations of Toys-Japan, whose results we began consolidating in fiscal
2006. 22




---



##### Table of Contents



Store Count by Division (Segment)
 Divisional Store CountNovember 3,
    
    October 28,2007
    
    2006
    
    ChangeToys
R Us  U.S.
    
    
    587
    
    
    
    587
    
    
    
    Toys
R Us  International (1)
    
    
    709
    
    
    
    662
    
    
    
    47Babies R Us
    
    
    257
    
    
    
    245
    
    
    
    12Total
    
    
    1,553
    
    
    
    1,494
    
    
    
    59
 
 (1)
    
    Store count as of November 3, 2007 includes 502 wholly-owned (including
169 in Japan) and 207 licensed and franchised stores. Store count as of
October 28, 2006 includes 478 wholly-owned (including 164 in Japan) and 184
licensed and franchised stores. Net (Loss) Income
 13 Weeks Ended
    
    
    39 Weeks EndedNovember 3,
    
    
    October 28,
    
    
    
    
    
    
    November 3,
    
    
    October 28,(In millions)
    
    2007
    
    
    2006
    
    
    $ Change
    
    
    2007
    
    
    2006
    
    
    $ ChangeNet (loss) income
    
    $
    (76
    )
    
    $
    41
    
    
    $
    (117
    )
    
    $
    (159
    )
    
    $
    (115
    )
    
    $
    (44
    )
   Net Sales
  23




---



##### Table of Contents



13 Weeks EndedPercentage of Net SalesNovember 3,
    
    
    October 28,
    
    
    
    
    
    
    
    
    
    
    November 3,
    
    
    October 28,($ in millions)
    
    2007
    
    
    2006
    
    
    $ Change
    
    
    % Change
    
    
    2007
    
    
    2006Toys R Us -
U.S.
    
    $
    1,040
    
    
    $
    986
    
    
    $
    54
    
    
    
    5.5
    %
    
    
    37.4
    %
    
    
    38.9
    %Toys R Us -
International
    
    
    1,107
    
    
    
    948
    
    
    
    159
    
    
    
    16.8
    %
    
    
    39.8
    %
    
    
    37.4
    %Babies R
Us
    
    
    634
    
    
    
    600
    
    
    
    34
    
    
    
    5.7
    %
    
    
    22.8
    %
    
    
    23.7
    %Total net
sales
    
    $
    2,781
    
    
    $
    2,534
    
    
    $
    247
    
    
    
    9.7
    %
    
    
    100.0
    %
    
    
    100.0
    %
   39 Weeks EndedPercentage of Net SalesNovember 3,
    
    
    October 28,
    
    
    
    
    
    
    
    
    
    
    November 3,
    
    
    October 28,($ in millions)
    
    2007
    
    
    2006
    
    
    $ Change
    
    
    % Change
    
    
    2007
    
    
    2006Toys R Us -
U.S.
    
    $
    3,058
    
    
    $
    2,981
    
    
    $
    77
    
    
    
    2.6
    %
    
    
    38.4
    %
    
    
    40.4
    %Toys R Us -
International
    
    
    3,013
    
    
    
    2,630
    
    
    
    383
    
    
    
    14.6
    %
    
    
    37.8
    %
    
    
    35.7
    %Babies R
Us
    
    
    1,896
    
    
    
    1,760
    
    
    
    136
    
    
    
    7.7
    %
    
    
    23.8
    %
    
    
    23.9
    %Total net
sales
    
    $
    7,967
    
    
    $
    7,371
    
    
    $
    596
    
    
    
    8.1
    %
    
    
    100.0
    %
    
    
    100.0
    %
   Toys R Us  U.S.
    24




---



##### Table of Contents



Toys R Us  International
     Babies R Us
     Cost of Sales and Gross Margin
  
    
    The cost of acquired merchandise from vendors;
    
    Freight in;
    
    Markdowns;
    
    Provision for inventory shortages; and
 25




---



##### Table of Contents




    
    Credits and allowances from our merchandise vendors.
 13 Weeks EndedPercentage of Net SalesNovember 3,
    
    
    October 28,
    
    
    
    
    
    
    November 3,
    
    
    October 28,
    
    
    Percentage of Net($ in millions)
    
    2007
    
    
    2006
    
    
    $ Change
    
    
    2007
    
    
    2006
    
    
    Sales ChangeToys R Us -
U.S.
    
    $
    314
    
    
    $
    294
    
    
    $
    20
    
    
    
    30.2
    %
    
    
    29.8
    %
    
    
    0.4
    %Toys R Us -
International
    
    
    407
    
    
    
    330
    
    
    
    77
    
    
    
    36.8
    %
    
    
    34.8
    %
    
    
    2.0
    %Babies R
Us
    
    
    256
    
    
    
    237
    
    
    
    19
    
    
    
    40.4
    %
    
    
    39.5
    %
    
    
    0.9
    %Total gross
margin
    
    $
    977
    
    
    $
    861
    
    
    $
    116
    
    
    
    35.1
    %
    
    
    34.0
    %
    
    
    1.1
    %
  39 Weeks EndedPercentage of Net SalesNovember 3,
    
    
    October 28,
    
    
    
    
    
    
    November 3,
    
    
    October 28,
    
    
    Percentage of Net($ in millions)
    
    2007
    
    
    2006
    
    
    $ Change
    
    
    2007
    
    
    2006
    
    
    Sales ChangeToys R Us -
U.S.
    
    $
    988
    
    
    $
    955
    
    
    $
    33
    
    
    
    32.3
    %
    
    
    32.0
    %
    
    
    0.3
    %Toys R Us -
International
    
    
    1,086
    
    
    
    926
    
    
    
    160
    
    
    
    36.0
    %
    
    
    35.2
    %
    
    
    0.8
    %Babies R
Us
    
    
    748
    
    
    
    677
    
    
    
    71
    
    
    
    39.5
    %
    
    
    38.5
    %
    
    
    1.0
    %Total gross
margin
    
    $
    2,822
    
    
    $
    2,558
    
    
    $
    264
    
    
    
    35.4
    %
    
    
    34.7
    %
    
    
    0.7
    %
  Toys R Us  U.S.
    Toys R Us  International
  26




---



##### Table of Contents



Babies R Us
    Selling, General and Administrative Expenses (SG&A)
  
    
    Store payroll and related payroll benefits;
    
    Rent and other store operating expenses;
    
    Advertising expenses;
    
    Other income;
    
    Costs associated with operating our distribution network that primarily relate to
moving merchandise from distribution centers to stores; and
    
    Other corporate-related expenses.
 27




---



##### Table of Contents



13 Weeks EndedPercentage of Net SalesNovember 3,
    
    October 28,
    
    
    
    
    
    November 3,
    
    October 28,
    
    Percentage of Net($ in millions)
    
    2007
    
    2006
    
    $ Change
    
    2007
    
    2006
    
    Sales ChangeToys R Us -
Consolidated
    
    $
    924
    
    $
    802
    
    $
    122
    
    
    33.2%
    
    
    31.6%
    
    
    1.6%
   39 Weeks EndedPercentage of Net SalesNovember 3,
    
    October 28,
    
    
    
    
    
    November 3,
    
    October 28,
    
    Percentage of Net($ in millions)
    
    2007
    
    2006
    
    $ Change
    
    2007
    
    2006
    
    Sales ChangeToys R Us -
Consolidated.
    
    $
    2,536
    
    $
    2,280
    
    $
    256
    
    
    31.8%
    
    
    30.9%
    
    
    0.9%
   Depreciation and Amortization
 13 Weeks Ended
    
    39 Weeks EndedNovember 3,
    
    October 28,
    
    
    
    November 3,
    
    October 28,(In millions)
    
    2007
    
    2006
    
    $ Change
    
    2007
    
    2006
    
    $ ChangeToys R Us - Consolidated
    
    $
    94
    
    $
    92
    
    $
    2
    
    $
    291
    
    $
    305
    
    $
    (14)
   28




---



##### Table of Contents



Net gains on sales of properties
 13 Weeks Ended
    
    
    39 Weeks EndedNovember 3,
    
    
    October 28,
    
    
    
    
    
    
    November 3,
    
    
    October 28,(In millions)
    
    2007
    
    
    2006
    
    
    $ Change
    
    
    2007
    
    
    2006
    
    
    $ ChangeToys R Us -
Consolidated
    
    $
    18
    
    
    $
    109
    
    
    $
    (91
    )
    
    $
    34
    
    
    $
    109
    
    
    $
    (75
    )
   Restructuring Charges (Reversals) and Other
 13 Weeks Ended
    
    
    39 Weeks EndedNovember 3,
    
    
    October 28,
    
    
    
    
    
    
    November 3,
    
    
    October 28,(In millions)
    
    2007
    
    
    2006
    
    
    $ Change
    
    
    2007
    
    
    2006
    
    
    $ ChangeToys R Us - Consolidated
    
    $
    3
    
    
    $
    (1
    )
    
    $
    4
    
    
    $
    4
    
    
    $
    4
    
    
    $
    
   Interest Expense
 13 Weeks Ended
    
    
    39 Weeks EndedNovember 3,
    
    
    October 28,
    
    
    
    
    
    
    November 3,
    
    
    October 28,(In millions)
    
    2007
    
    
    2006
    
    
    $ Change
    
    
    2007
    
    
    2006
    
    
    $ ChangeToys R Us -
Consolidated
    
    $
    (136
    )
    
    $
    (141
    )
    
    $
    5
    
    
    $
    (378
    )
    
    $
    (401
    )
    
    $
    23
  29




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##### Table of Contents



Interest Income
 13 Weeks Ended
    
    39 Weeks EndedNovember 3,
    
    October 28,
    
    
    
    
    
    November 3,
    
    October 28,(In millions)
    
    2007
    
    2006
    
    $ Change
    
    2007
    
    2006
    
    $ ChangeToys R Us -
Consolidated
    
    $
    
    3
    
    $
    
    4
    
    $
    (1
    )
    
    $
    
    15
    
    $
    
    17
    
    $
    (2
    )
  Income tax benefit
  13 Weeks Ended
    
    39 Weeks EndedNovember 3,
    
    October 28,
    
    November 3,
    
    October 28,($ in millions)
    
    2007
    
    2006
    
    2007
    
    2006Loss before income
taxes and minority
interest
    
    $
    (159
    )
    
    $
    (60
    )
    
    $
    (338
    )
    
    $
    (306
    )Income tax
benefit
    
    
    81
    
    
    
    94
    
    
    
    170
    
    
    
    183Effective tax
rate
    
    
    (50.9
    )%
    
    
    (156.7
    )%
    
    
    (50.3
    )%
    
    
    (59.8
    )%
    Liquidity and Capital Resources
 Overview
   30




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##### Table of Contents



39 Weeks EndedNovember 3,
    
    
    October 28,($ in millions)
    
    2007
    
    
    2006
    
    
    $ Change
    
    
    % ChangeNet cash used in
operating
activities
    
    $
    (946
    )
    
    $
    (1,238
    )
    
    $
    292
    
    
    
    23.6
    %Net cash (used in)
provided by
investing
activities
    
    
    (140
    )
    
    
    3
    
    
    
    (143)
    
    
    
    (4,766.7
    )%Net cash provided
by financing
activities
    
    
    513
    
    
    
    609
    
    
    
    (96
    )
    
    
    (15.8
    )%Effect of exchange
rate changes on
cash and cash
equivalents
    
    
    48
    
    
    
    38
    
    
    
    10
    
    
    
    26.3
    %Net decrease during
period in cash and
cash
equivalents
    
    $
    (525
    )
    
    $
    (588
    )
    
    $
    63
    
    
    
    10.7
    %
 Cash Flows Used in Operating Activities
  Cash Flows (Used in) Provided by Investing Activities
   Cash Flows Provided by Financing Activities
  Debt
   31




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##### Table of Contents



Contractual Obligations and Commitments
   Credit Ratings
  Moodys
    
    Standard and PoorsLong-term debt
    
    B2
    
    BOutlook
    
    Stable
    
    Stable
     32




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##### Table of Contents



Critical Accounting Policies
  Merchandise inventories
   Income taxes
   Recent Accounting Pronouncements
  Forward-Looking Statements
  33




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Foreign Exchange Exposure
  Interest Rate Exposure
   
 Item 4. Controls and Procedures
 Disclosure Controls and Procedures
   34




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##### Table of Contents



Changes in Internal Control over Financial Reporting
  
 35




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##### Table of Contents



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
  36




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##### Table of Contents



SIGNATURE
  TOYS R US, INC.
(Registrant)Date: December 18, 2007
    /s/ F. Clay Creasey, Jr.F. Clay Creasey, Jr.Executive Vice President  Chief Financial Officer 37




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##### Table of Contents



INDEX TO EXHIBITS
  Exhibit No.
    
    Description3.3
    
    Amendment No. 1 to the Amended and Restated Certificate of
Incorporation of Toys R Us Holdings, Inc., filed with the
Secretary of State of the State of Delaware on August 3, 2007.10.1
    
    Amended and Restated Toys R Us Holdings, Inc. 2005
Management Equity Plan, adopted on August 3, 2007.31.1
    
    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.
 38