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 1, 2008
 Commission file number 1-11609
 
 (TOYSRUS 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)
 
 þ o
  Large accelerated filer o
    
    Accelerated filer oNon-accelerated filer þ (Do not check if a smaller reporting company)
    
    Smaller reporting company o
 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 1, 2008, February 2, 2008 and November 3, 2007
    
    
    3Condensed Consolidated Statements of Operations for the thirteen and thirty-nine weeks ended
November 1, 2008 and November 3, 2007
    
    
    4Condensed Consolidated Statements of Cash Flows for the thirty-nine weeks ended November 1, 2008
and November 3, 2007
    
    
    5Condensed Consolidated Statement of Stockholders Deficit for the thirty-nine weeks ended November
1, 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)
 November 1,
    
    
    February 2,
    
    
    November 3,(In millions)
    
    2008
    
    
    2008
    
    
    2007ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    213
    
    
    $
    751
    
    
    $
    240Short-term investments
    
    
    
    
    
    
    168
    
    
    
    Accounts and other receivables
    
    
    156
    
    
    
    256
    
    
    
    179Merchandise inventories
    
    
    3,238
    
    
    
    1,998
    
    
    
    3,308Income taxes receivable
    
    
    70
    
    
    
    
    
    
    
    144Current deferred tax assets
    
    
    86
    
    
    
    80
    
    
    
    77Prepaid expenses and other current assets
    
    
    151
    
    
    
    140
    
    
    
    159Total current assets
    
    
    3,914
    
    
    
    3,393
    
    
    
    4,107Property and equipment, net
    
    
    4,226
    
    
    
    4,385
    
    
    
    4,391Goodwill, net
    
    
    367
    
    
    
    366
    
    
    
    365Deferred tax assets
    
    
    103
    
    
    
    197
    
    
    
    146Restricted cash
    
    
    155
    
    
    
    131
    
    
    
    126Other assets
    
    
    441
    
    
    
    480
    
    
    
    497$
    9,206
    
    
    $
    8,952
    
    
    $
    9,632LIABILITIES AND STOCKHOLDERS DEFICITCurrent Liabilities:Short-term borrowings
    
    $
    85
    
    
    $
    
    
    
    $
    243Accounts payable
    
    
    2,052
    
    
    
    1,534
    
    
    
    2,113Accrued expenses and other current liabilities
    
    
    863
    
    
    
    996
    
    
    
    900Income taxes payable
    
    
    3
    
    
    
    128
    
    
    
    8Current portion of long-term debt
    
    
    30
    
    
    
    50
    
    
    
    48Total current liabilities
    
    
    3,033
    
    
    
    2,708
    
    
    
    3,312Long-term debt
    
    
    6,099
    
    
    
    5,824
    
    
    
    6,265Deferred tax liabilities
    
    
    15
    
    
    
    21
    
    
    
    34Deferred rent liabilities
    
    
    261
    
    
    
    261
    
    
    
    257Other non-current liabilities
    
    
    354
    
    
    
    374
    
    
    
    371Minority
interest in Toys - Japan
    
    
    105
    
    
    
    153
    
    
    
    130Stockholders deficit
    
    
    (661
    )
    
    
    (389
    )
    
    
    (737
    )$
    9,206
    
    
    $
    8,952
    
    
    $
    9,632
  3




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##### 



TOYS R US, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 13 Weeks Ended
    
    
    39 Weeks EndedNovember 1,
    
    
    November 3,
    
    
    November 1,
    
    
    November 3,(In millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Net sales
    
    $
    2,773
    
    
    $
    2,781
    
    
    $
    8,263
    
    
    $
    7,967Cost of sales
    
    
    1,813
    
    
    
    1,804
    
    
    
    5,312
    
    
    
    5,145Gross margin
    
    
    960
    
    
    
    977
    
    
    
    2,951
    
    
    
    2,822Selling, general and administrative expenses
    
    
    920
    
    
    
    927
    
    
    
    2,670
    
    
    
    2,540Depreciation and amortization
    
    
    95
    
    
    
    94
    
    
    
    298
    
    
    
    291Gain on liquidation of foreign subsidiary
    
    
    
    
    
    
    
    
    
    
    (39
    )
    
    
    Net gains on sales of properties
    
    
    (1
    )
    
    
    (18
    )
    
    
    (5
    )
    
    
    (34
    )Total operating expenses
    
    
    1,014
    
    
    
    1,003
    
    
    
    2,924
    
    
    
    2,797Operating (loss) earnings
    
    
    (54
    )
    
    
    (26
    )
    
    
    27
    
    
    
    25Other (expense) income:Interest expense
    
    
    (115
    )
    
    
    (136
    )
    
    
    (315
    )
    
    
    (378
    )Interest income
    
    
    2
    
    
    
    3
    
    
    
    13
    
    
    
    15Loss before income taxes and minority interest
    
    
    (167
    )
    
    
    (159
    )
    
    
    (275
    )
    
    
    (338
    )Income tax benefit
    
    
    61
    
    
    
    81
    
    
    
    131
    
    
    
    170Minority interest
    
    
    2
    
    
    
    2
    
    
    
    17
    
    
    
    9Net loss
    
    $
    (104
    )
    
    $
    (76
    )
    
    $
    (127
    )
    
    $
    (159
    )
  4




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##### 



TOYS R US, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 39 Weeks EndedNovember 1,
    
    
    November 3,(In millions)
    
    2008
    
    
    2007Cash Flows from Operating Activities:Net loss
    
    $
    (127
    )
    
    $
    (159
    )Adjustments to reconcile Net loss to net cash used in operating activities:Depreciation and amortization
    
    
    298
    
    
    
    291Net gains on sales of properties
    
    
    (5
    )
    
    
    (34
    )Amortization of debt issuance costs
    
    
    26
    
    
    
    23Minority
interest in Toys - Japan
    
    
    (17
    )
    
    
    (9
    )Deferred income taxes
    
    
    32
    
    
    
    (58
    )Gain on liquidation of foreign subsidiary
    
    
    (39
    )
    
    
    Non-cash portion of restructuring, other charges and impairments
    
    
    21
    
    
    
    7Other
    
    
    31
    
    
    
    10Changes in operating assets and liabilities:Accounts and other receivables
    
    
    101
    
    
    
    67Merchandise inventories
    
    
    (1,383
    )
    
    
    (1,575
    )Prepaid expenses and other operating assets
    
    
    (8
    )
    
    
    (28
    )Accounts payable
    
    
    573
    
    
    
    746Accrued expenses and other liabilities
    
    
    (173
    )
    
    
    (73
    )Income taxes payable and receivable
    
    
    (185
    )
    
    
    (154
    )Net cash used in operating activities
    
    
    (855
    )
    
    
    (946
    )Cash Flows from Investing Activities:Capital expenditures
    
    
    (294
    )
    
    
    (218
    )(Increase) decrease in restricted cash
    
    
    (24
    )
    
    
    22Purchase of
Toys - Japan shares
    
    
    (34
    )
    
    
    Proceeds from sales of fixed assets
    
    
    33
    
    
    
    56Proceeds from sale of short-term investments
    
    
    167
    
    
    
    Net cash used in investing activities
    
    
    (152
    )
    
    
    (140
    )Cash Flows from Financing Activities:Long-term debt borrowings
    
    
    795
    
    
    
    760Short-term debt borrowings
    
    
    115
    
    
    
    199Long-term debt repayments
    
    
    (394
    )
    
    
    (330
    )Short-term debt repayments
    
    
    (35
    )
    
    
    (115
    )Other
    
    
    (5
    )
    
    
    (1
    )Net cash provided by financing activities
    
    
    476
    
    
    
    513Effect of exchange rate changes on cash and cash equivalents
    
    
    (7
    )
    
    
    48Cash and cash equivalents:Net decrease during period
    
    
    (538
    )
    
    
    (525
    )Cash and cash equivalents at beginning of period
    
    
    751
    
    
    
    765Cash and cash equivalents at end of period
    
    $
    213
    
    
    $
    240
  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 Capital
    
    
    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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (127
    )
    
    
    (127
    )Unrealized loss on hedged transactions, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )Foreign currency effect on liquidation of foreign subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (39
    )
    
    
    
    
    
    
    (39
    )Foreign currency translation adjustments, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (111
    )
    
    
    
    
    
    
    (111
    )Toys R Us Holdings, Inc. reorganization (1)
    
    
    49
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    6Balance, November 1, 2008
    
    
    49
    
    
    $
    
    
    
    $
    17
    
    
    $
    (133
    )
    
    $
    (545
    )
    
    $
    (661
    )
 
 (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 November 1, 2008
    
    As Reported
    
    Pro Forma
    
    ChangeMerchandise inventories
    
    $
    3,238
    
    
    $
    3,211
    
    
    $
    27Total current assets
    
    
    3,914
    
    
    
    3,887
    
    
    
    27Total
assets
    
    
    9,206
    
    
    
    9,179
    
    
    
    27Accrued expenses and other current liabilities
    
    
    863
    
    
    
    852
    
    
    
    11Total current liabilities
    
    
    3,033
    
    
    
    3,022
    
    
    
    11Stockholders deficit
    
    
    (661
    )
    
    
    (677
    )
    
    
    16Total liabilities and stockholders deficit
    
    
    9,206
    
    
    
    9,179
    
    
    
    27
  (In millions)For the 13 Weeks Ended November 1, 2008
    
    As Reported
    
    Pro Forma
    
    ChangeCost of sales
    
    $
    1,813
    
    
    $
    1,820
    
    
    $
    (7
    )Gross margin
    
    
    960
    
    
    
    953
    
    
    
    7Operating loss
    
    
    (54
    )
    
    
    (61
    )
    
    
    7Loss before income taxes and minority interest
    
    
    (167
    )
    
    
    (174
    )
    
    
    7Income tax benefit
    
    
    61
    
    
    
    64
    
    
    
    (3
    )Net
loss
    
    
    (104
    )
    
    
    (108
    )
    
    
    4
 (In millions)For the 39 Weeks Ended November 1, 2008
    
    As Reported
    
    Pro Forma
    
    ChangeCost of sales
    
    $
    5,312
    
    
    $
    5,341
    
    
    $
    (29
    )Gross margin
    
    
    2,951
    
    
    
    2,922
    
    
    
    29Operating earnings
    
    
    27
    
    
    
    (2
    )
    
    
    29Loss before income taxes and minority interest
    
    
    (275
    )
    
    
    (304
    )
    
    
    29Income tax benefit
    
    
    131
    
    
    
    143
    
    
    
    (12
    )Net
loss
    
    
    (127
    )
    
    
    (144
    )
    
    
    17
 8




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##### 



3. Short-term borrowings and long-term debt
  November 1,
    
    
    February 2,
    
    
    November 3,(In millions)
    
    2008
    
    
    2008
    
    
    2007Short-term borrowingsToys - Japan, short-term bank loans
    
    $
    85
    
    
    $
    
    
    
    $
    243Long-term debtNote due in semi-annual installments through February 20, 2008 (1)
    
    
    
    
    
    
    21
    
    
    
    19Toys - Japan 0.77%-1.18% loans due fiscal 2008 (2)
    
    
    
    
    
    
    137
    
    
    
    Toys - Japan committed credit line due fiscal 2011
    
    
    204
    
    
    
    
    
    
    
    Secured real estate loans, due August 9, 2009 (3)
    
    
    800
    
    
    
    800
    
    
    
    800Unsecured credit agreement, due December 8, 2009 (4)
    
    
    1,300
    
    
    
    1,300
    
    
    
    1,300$2.0 billion secured revolving credit facility, expires fiscal 2010
    
    
    367
    
    
    
    
    
    
    
    489Multi-currency revolving credit facility, expires fiscal 2010
    
    
    
    
    
    
    
    
    
    
    28Toys - Japan 1.20%-2.80% loans maturing fiscals 2010-2014
    
    
    157
    
    
    
    153
    
    
    
    1617.625% notes, due fiscal 2011 (5)
    
    
    513
    
    
    
    517
    
    
    
    518Secured term loan facility, due fiscal 2012
    
    
    797
    
    
    
    797
    
    
    
    797Unsecured credit facility, due fiscal 2012
    
    
    180
    
    
    
    180
    
    
    
    180French real estate credit facility, due fiscal 2012
    
    
    81
    
    
    
    95
    
    
    
    93Spanish real estate credit facility, due fiscal 2012
    
    
    167
    
    
    
    196
    
    
    
    193U.K. real estate senior credit facility, due fiscal 2013
    
    
    568
    
    
    
    696
    
    
    
    741U.K. real estate junior credit facility, due fiscal 2013
    
    
    101
    
    
    
    124
    
    
    
    1327.875% senior notes, due fiscal 2013 (5)
    
    
    393
    
    
    
    392
    
    
    
    3927.375% senior notes, due fiscal 2018 (5)
    
    
    406
    
    
    
    407
    
    
    
    4078.750% debentures, due fiscal 2021 (6)
    
    
    22
    
    
    
    22
    
    
    
    22Capital leases and other
    
    
    73
    
    
    
    37
    
    
    
    416,129
    
    
    
    5,874
    
    
    
    6,313Less current portion
    
    
    30
    
    
    
    50
    
    
    
    48Total long-term debt
    
    $
    6,099
    
    
    $
    5,824
    
    
    $
    6,265
 
 (1)
    
    On February 26, 2008, we paid the final installment of this note.(2)
    
    On April 30, 2008, we refinanced these borrowings under
the Toys - Japan committed credit line due fiscal 2011.(3)
    
    We have exercised our second maturity date extension option, which extended the maturity date of the loans to August 9, 2009. We have the contractual ability and intent to extend the maturity date to August 9, 2010.(4)
    
    We have exercised our first maturity date extension option, which extended the maturity date of the loan to December 8, 2009. We have the contractual ability and intent to extend the maturity date to December 7, 2010.(5)
    
    Represents obligations of the Toys R Us, Inc. legal entity.(6)
    
    Represents obligations of Toys R Us, Inc. and
Toys R Us - Delaware.  Borrowing Availability
 £ 
 9




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##### 



Toys - Japan Unsecured Credit Lines ($85 million and $204 million at November 1, 2008)
     Secured real estate loans, due August 9, 2009 ($800 million at November 1, 2008)
  Unsecured credit agreement, due December 8, 2009 ($1.3 billion at November 1, 2008)
  Guarantees
  4. Derivative instruments and hedging activities
   10




---



##### 



1.3 Billion Unsecured Credit Agreement
   $800 Secured Real Estate Loan
  Merchandise Import Purchases
  Toys-Japan Interest Rate Swap
  5. Fair value measurements
    11




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##### 



Short-term Investments
  Derivative Financial Instruments
    6. Income taxes
  13 Weeks Ended
    
    39 Weeks EndedNovember 1,
    
    November 3,
    
    November 1,
    
    November 3,($ in millions)
    
    2008
    
    2007
    
    2008
    
    2007Loss before income taxes and minority interest
    
    $
    (167
    )
    
    $
    (159
    )
    
    $
    (275
    )
    
    $
    (338
    )Income tax benefit
    
    
    61
    
    
    
    81
    
    
    
    131
    
    
    
    170Effective tax rate
    
    
    (36.5
    )%
    
    
    (50.9
    )%
    
    
    (47.6
    )%
    
    
    (50.3
    )%
    12




---



##### 



7. Comprehensive loss
  13 Weeks Ended
    
    
    39 Weeks EndedNovember 1,
    
    
    November 3,
    
    
    November 1,
    
    
    November 3,(In millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Net loss
    
    $
    (104
    )
    
    $
    (76
    )
    
    $
    (127
    )
    
    $
    (159
    )Foreign currency translation adjustments, net of tax
    
    
    (114
    )
    
    
    49
    
    
    
    (111
    )
    
    
    83Foreign currency effect on liquidation of foreign
subsidiary
    
    
    
    
    
    
    
    
    
    
    (39
    )
    
    
    Unrealized loss on hedged transactions, net of tax
    
    
    (13
    )
    
    
    (1
    )
    
    
    (3
    )
    
    
    (1
    )Minimum pension liability adjustment, net of tax
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )Comprehensive loss
    
    $
    (231
    )
    
    $
    (29
    )
    
    $
    (280
    )
    
    $
    (78
    )
 8. Segments
   13




---



##### 



13 Weeks Ended
    
    39 Weeks EndedNovember 1,
    
    November 3,
    
    November 1,
    
    November 3,2008
    
    2007
    
    2008
    
    2007Juvenile
    
    
    36.6
    %
    
    
    35.5
    %
    
    
    37.6
    %
    
    
    36.6
    %Entertainment
    
    
    15.5
    %
    
    
    15.1
    %
    
    
    15.4
    %
    
    
    15.5
    %Seasonal
    
    
    11.4
    %
    
    
    11.7
    %
    
    
    14.9
    %
    
    
    15.4
    %Learning
    
    
    18.7
    %
    
    
    19.2
    %
    
    
    16.1
    %
    
    
    16.2
    %Core Toy
    
    
    15.0
    %
    
    
    15.8
    %
    
    
    13.2
    %
    
    
    13.6
    %Other
    
    
    2.8
    %
    
    
    2.7
    %
    
    
    2.8
    %
    
    
    2.7
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  13 Weeks Ended
    
    
    39 Weeks EndedNovember 1,
    
    
    November 3,
    
    
    November 1,
    
    
    November 3,(In millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Net salesDomestic
    
    $
    1,700
    
    
    $
    1,674
    
    
    $
    5,097
    
    
    $
    4,954International
    
    
    1,073
    
    
    
    1,107
    
    
    
    3,166
    
    
    
    3,013Total Net sales
    
    $
    2,773
    
    
    $
    2,781
    
    
    $
    8,263
    
    
    $
    7,967Operating (loss) earningsDomestic
    
    $
    8
    
    
    $
    (3
    )
    
    $
    203
    
    
    $
    180International
    
    
    12
    
    
    
    37
    
    
    
    (16
    )
    
    
    33Corporate and other charges
    
    
    (75
    )
    
    
    (78
    )
    
    
    (204
    )
    
    
    (222
    )Gain on liquidation of foreign subsidiary
    
    
    
    
    
    
    
    
    
    
    39
    
    
    
    Net gains on sales of properties
    
    
    1
    
    
    
    18
    
    
    
    5
    
    
    
    34Operating (loss) earnings
    
    
    (54
    )
    
    
    (26
    )
    
    
    27
    
    
    
    25Interest expense
    
    
    (115
    )
    
    
    (136
    )
    
    
    (315
    )
    
    
    (378
    )Interest income
    
    
    2
    
    
    
    3
    
    
    
    13
    
    
    
    15Loss before income taxes and minority interest
    
    $
    (167
    )
    
    $
    (159
    )
    
    $
    (275
    )
    
    $
    (338
    )
 November 1,
    
    
    February 2,
    
    
    November 3,(In millions)
    
    2008
    
    
    2008
    
    
    2007Merchandise inventoriesDomestic (1)
    
    $
    2,023
    
    
    $
    1,242
    
    
    $
    2,048International
    
    
    1,215
    
    
    
    756
    
    
    
    1,260Total Merchandise inventories
    
    $
    3,238
    
    
    $
    1,998
    
    
    $
    3,308
 
 (1)
    
    Refer to Note 2 to the Condensed Consolidated Financial Statements entitled Change
in accounting principle for the impact of the change in accounting methods for valuing the
Merchandise inventories of our Domestic segment. 9. Litigation and legal proceedings
  14




---



##### 



10. Related party transactions
 Transactions with the Sponsors -
   11. Toys - Japan tender offer
    12. Reorganization
  15




---



##### 



13. Liquidation of Hong Kong subsidiary and sales of properties
    14. Recent accounting pronouncements
 .
   16




---



##### 



,
   17




---



##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Our Business
 .
  Financial Performance
  13 Weeks Ended
    
    39 Weeks EndedNovember 1,
    
    November 3,
    
    November 1,
    
    November 3,($ in millions)
    
    2008
    
    2007
    
    2008
    
    2007Net sales (decline)
growth (versus
prior year)
    
    
    (0.3
    )%
    
    
    9.7
    %
    
    
    3.7
    %
    
    
    8.1
    %Gross margin as a
percentage of Net
sales
    
    
    34.6
    %
    
    
    35.1
    %
    
    
    35.7
    %
    
    
    35.4
    %Selling, general
and administrative
expenses as a
percentage of Net
sales
    
    
    33.2
    %
    
    
    33.3
    %
    
    
    32.3
    %
    
    
    31.9
    %Net loss
    
    $
    (104
    )
    
    $
    (76
    )
    
    $
    (127
    )
    
    $
    (159
    )
    18




---



##### 



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.
    13 Weeks Ended
    
    39 Weeks EndedNovember 1, 2008
    
    November 3, 2007 vs.
    
    November 1, 2008
    
    November 3, 2007 vs.vs. 2007
    
    2006
    
    vs. 2007
    
    2006Domestic
    
    
    (0.2
    )%
    
    
    (0.9
    )%
    
    
    1.2
    %
    
    
    1.6
    %International
    
    
    (2.1
    )%
    
    
    2.0
    %
    
    
    (2.5
    )%
    
    
    3.8
    %
 Store Count by Segment
 Divisional Store CountNovember 1,
    
    
    November 3,2008
    
    
    2007
    
    
    ChangeDomestic (1)
    
    
    845
    
    
    
    844
    
    
    
    1International (2)
    
    
    701
    
    
    
    709
    
    
    
    (8
    )Total
    
    
    1,546
    
    
    
    1,553
    
    
    
    (7
    )
 
 (1)
    
    Store count as of November 1, 2008 included 49
side-by-side stores and 17 R superstores. As of November 3,
2007, there were 21 side-by-side stores and 2 R superstores.(2)
    
    Store count as of November 1, 2008 included 504
wholly-owned (including 167 in Japan) and 197 licensed and
franchised stores. As of November 3, 2007, there were 502
wholly-owned (including 169 in Japan) and 207 licensed and
franchised stores. Internationals wholly-owned store count
includes 64 and 27 side-by-side stores as of November 1, 2008
and November 3, 2007, respectively. 19




---



##### 



Net Loss
 13 Weeks Ended
    
    39 Weeks EndedNovember 1,
    
    November 3,
    
    
    
    
    
    November 1,
    
    November 3,(In millions)
    
    2008
    
    2007
    
    Change
    
    2008
    
    2007
    
    ChangeNet loss
    
    $
    (104
    )
    
    $
    (76
    )
    
    $
    (28
    )
    
    $
    (127
    )
    
    $
    (159
    )
    
    $
    32
   Net Sales
 13 Weeks EndedPercentage of Net SalesNovember 1,
    
    
    November 3,
    
    
    
    
    
    
    
    
    
    
    November 1,
    
    
    November 3,($ in millions)
    
    2008
    
    
    2007
    
    
    $ Change
    
    
    % Change
    
    
    2008
    
    
    2007Domestic
    
    $
    1,700
    
    
    $
    1,674
    
    
    $
    26
    
    
    
    1.6
    %
    
    
    61.3
    %
    
    
    60.2
    %International
    
    
    1,073
    
    
    
    1,107
    
    
    
    (34
    )
    
    
    (3.1
    )%
    
    
    38.7
    %
    
    
    39.8
    %Total Net sales
    
    $
    2,773
    
    
    $
    2,781
    
    
    $
    (8
    )
    
    
    (0.3
    )%
    
    
    100.0
    %
    
    
    100.0
    %
   39 Weeks EndedPercentage of Net SalesNovember 1,
    
    
    November 3,
    
    
    
    
    
    
    
    
    
    
    November 1,
    
    
    November 3,($ in millions)
    
    2008
    
    
    2007
    
    
    $ Change
    
    
    % Change
    
    
    2008
    
    
    2007Domestic
    
    $
    5,097
    
    
    $
    4,954
    
    
    $
    143
    
    
    
    2.9
    %
    
    
    61.7
    %
    
    
    62.2
    %International
    
    
    3,166
    
    
    
    3,013
    
    
    
    153
    
    
    
    5.1
    %
    
    
    38.3
    %
    
    
    37.8
    %Total Net sales
    
    $
    8,263
    
    
    $
    7,967
    
    
    $
    296
    
    
    
    3.7
    %
    
    
    100.0
    %
    
    
    100.0
    %
   20




---



##### 



Domestic
     International
     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 SalesNovember 1,
    
    
    November 3,
    
    
    
    
    
    
    November 1,
    
    
    November 3,
    
    
    Percentage of Net($ in millions)
    
    2008
    
    
    2007
    
    
    $ Change
    
    
    2008
    
    
    2007
    
    
    Sales ChangeDomestic
    
    $
    565
    
    
    $
    570
    
    
    
    (5
    )
    
    
    33.2
    %
    
    
    34.1
    %
    
    
    (0.9
    )%International
    
    
    395
    
    
    
    407
    
    
    
    (12
    )
    
    
    36.8
    %
    
    
    36.8
    %
    
    
    Total Gross margin
    
    $
    960
    
    
    $
    977
    
    
    $
    (17
    )
    
    
    34.6
    %
    
    
    35.1
    %
    
    
    (0.5
    )%
   Gross margin for the 39 Weeks EndedPercentage of Net SalesNovember 1,
    
    
    November 3,
    
    
    
    
    
    
    November 1,
    
    
    November 3,
    
    
    Percentage of Net($ in millions)
    
    2008
    
    
    2007
    
    
    $ Change
    
    
    2008
    
    
    2007
    
    
    Sales ChangeDomestic
    
    $
    1,786
    
    
    $
    1,736
    
    
    
    50
    
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    International
    
    
    1,165
    
    
    
    1,086
    
    
    
    79
    
    
    
    36.8
    %
    
    
    36.0
    %
    
    
    0.8
    %Total Gross margin
    
    $
    2,951
    
    
    $
    2,822
    
    
    $
    129
    
    
    
    35.7
    %
    
    
    35.4
    %
    
    
    0.3
    %
   Domestic
     International
  22




---



##### 



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 SalesNovember 1,
    
    November 3,
    
    
    
    
    
    November 1,
    
    November 3,
    
    Percentage of Net($ in millions)
    
    2008
    
    2007
    
    $ Change
    
    2008
    
    2007
    
    Sales ChangeToys
R Us - Consolidated
    
    $
    920

    
    $
      927

    
    $
    (7
    )

    
    33.2
    %
    
    
    33.3
    %
    
    
    (0.1
    )%
   39 Weeks EndedPercentage of Net SalesNovember 1,
    
    November 3,
    
    
    
    
    
    November 1,
    
    November 3,
    
    Percentage of Net($ in millions)
    
    2008
    
    2007
    
    $ Change
    
    2008
    
    2007
    
    Sales ChangeToys
R Us - Consolidated
    
    $
   2,670

    
    $
     2,540

    
    $
     130

    
    
    32.3
    %
    
    
    31.9
    %
    
    
    0.4
    %
   23




---



##### 



Depreciation and Amortization
 13 Weeks Ended
    
    39 Weeks EndedNovember 1,
    
    November 3,
    
    
    
    
    
    November 1,
    
    November 3,(In millions)
    
    2008
    
    2007
    
    Change
    
    2008
    
    2007
    
    ChangeToys
R Us - Consolidated
    
    $
    
    95
    
    $
    
    94
    
    $
    
    1
    
    $
    
    298
    
    $
    
    291
    
    $
    
    7
  Net gains on sales of properties
 13 Weeks Ended
    
    39 Weeks EndedNovember 1,
    
    November 3,
    
    
    
    
    
    November 1,
    
    November 3,(In millions)
    
    2008
    
    2007
    
    Change
    
    2008
    
    2007
    
    ChangeToys
R Us - Consolidated
    
    $
    
    1
    
    $
    
    18
    
    $
    
    (17)
    
    $
    
    5
    
    $
    
    34
    
    $
    
    (29)
  Interest Expense
 13 Weeks Ended
    
    39 Weeks EndedNovember 1,
    
    November 3,
    
    
    
    
    
    November 1,
    
    November 3,(In millions)
    
    2008
    
    2007
    
    Change
    
    2008
    
    2007
    
    ChangeToys
R Us - Consolidated
    
    $
    
    115
    
    $
    
    136
    
    $
    
    (21)
    
    $
    
    315
    
    $
    
    378
    
    $
    
    (63)
   Interest Income
 13 Weeks Ended
    
    39 Weeks EndedNovember 1,
    
    November 3,
    
    
    
    
    
    November 1,
    
    November 3,(In millions)
    
    2008
    
    2007
    
    Change
    
    2008
    
    2007
    
    ChangeToys
R Us - Consolidated
    
    $
    
    2
    
    $
    
    3
    
    $
    
    (1)
    
    $
    
    13
    
    $
    
    15
    
    $
    
    (2)
  Income tax benefit
  13 Weeks Ended
    
    39 Weeks EndedNovember 1,
    
    November 3,
    
    November 1,
    
    November 3,($ in millions)
    
    2008
    
    2007
    
    2008
    
    2007Loss before income taxes and minority interest
    
    
    (167
    )
    
    
    (159
    )
    
    
    (275
    )
    
    
    (338
    )Income tax benefit
    
    
    61
    
    
    
    81
    
    
    
    131
    
    
    
    170Effective tax rate
    
    
    (36.5
    )%
    
    
    (50.9
    )%
    
    
    (47.6
    )%
    
    
    (50.3
    )%
  24




---



##### 



Liquidity and Capital Resources
 Overview
 
   25




---



##### 



39 Weeks EndedNovember 1,
    
    
    November 3,($ in millions)
    
    2008
    
    
    2007
    
    
    $ Change
    
    
    % ChangeNet cash used in operating activities
    
    $
    (855
    )
    
    $
    (946
    )
    
    $
    91
    
    
    
    9.6
    %Net cash used in investing activities
    
    
    (152
    )
    
    
    (140
    )
    
    
    (12
    )
    
    
    (8.6
    )%Net cash provided by financing activities
    
    
    476
    
    
    
    513
    
    
    
    (37
    )
    
    
    (7.2
    )%Effect of exchange rate changes on cash and cash equivalents
    
    
    (7
    )
    
    
    48
    
    
    
    (55
    )
    
    
    (114.6
    )%Net decrease during period in cash and cash equivalents
    
    $
    (538
    )
    
    $
    (525
    )
    
    $
    (13
    )
    
    
    (2.5
    )%
 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
  StandardMoodys
    
    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 Currency Exchange 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: December 12, 2008

/s/
F. Clay Creasey, Jr.F. Clay Creasey, Jr.Executive Vice President - Chief Financial Officer 31




---



##### 



INDEX TO EXHIBITS
  Exhibit No.
    
    Description18
    
    
    Letter re: change in accounting principle.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