Exhibit 99.4
TOYS “R” US, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial information of Toys “R” Us, Inc. (“Toys”) has been derived by application of pro forma adjustments to the audited historical consolidated financial statements of Toys for the fiscal year ended January 29, 2005 and the unaudited historical condensed consolidated financial statements of Toys as of and for the 26 Weeks Ended July 30, 2005. Management believes that the July 30, 2005 unaudited condensed consolidated balance sheet presents a reasonable basis for the financial position of Toys at July 21, 2005. The unaudited pro forma condensed consolidated balance sheet gives effect to the acquisition as if it had occurred on July 30, 2005. The unaudited pro forma condensed consolidated statements of operations for the 26 weeks ended July 30, 2005 and the fiscal year ended January 29, 2005 give effect to the acquisition as if it had been consummated on February 1, 2004.
The unaudited pro forma condensed consolidated information, including the allocation of the purchase price, is based on estimates and preliminary valuations of the tangible and intangible assets acquired and liabilities assumed. Further refinements to these estimates and related allocation of the purchase price may be made based on final valuations.
The unaudited pro forma condensed consolidated financial information is presented for information purposes only and is not necessarily indicative of what Toys actual results of operations or financial position would have been had the acquisition been consummated on the dates indicated, nor does it purport to represent Toys results of operations or financial position for any future period.
The unaudited pro forma condensed consolidated financial information should be read in conjunction with (i) the consolidated financial statements and notes thereto of Toys as of and for the year ended January 29, 2005 which were filed by Toys with the SEC on April 29, 2005 under Part I, Item 8 of its Annual Report on Form 10-K for its fiscal year ended January 29, 2005, and which are filed as Exhibit 99.1 to this Current Report on this Form 8-K/A; and (ii) the unaudited condensed consolidated financial statements and notes thereto of Toys as of and for the 26 weeks ended July 30, 2005, which were filed by Toys with the SEC on September 14, 2005 under Part I, Item 1 of its Quarterly Report on Form 10-Q for the quarterly period ended July 30, 2005, and which are filed as Exhibit 99.2 to this Current Report on Form 8-K/A.
The unaudited pro forma condensed consolidated financial information for Toys that follows has been prepared solely to enable the Company to prepare its own unaudited pro forma financial information reflecting the application of purchase accounting to its acquisition of an indirect interest in Toys. As a separate reporting company, Toys has informed the Company that it will be preparing and presenting its consolidated financial statements on a historical basis and will not apply purchase accounting.
1
Toys “R” Us, Inc.
Pro-Forma Condensed Consolidated Balance Sheet
July 30, 2005 (unaudited)
| | Toys Consolidated | | Pro Forma | | Toys Consolidated | |
(Amounts in Thousands) | | Historical | | Adjustments | | Pro Forma Adjusted | |
| | (a) | | | | | |
| | | | | | | |
ASSETS | | | | | | | |
Current Assets: | | | | | | | |
Cash and cash equivalents | | $ | 453,000 | | $ | — | | $ | 453,000 | |
Accounts and other receivables | | 201,000 | | — | | 201,000 | |
Merchandise inventories | | 2,007,000 | | — | | 2,007,000 | |
Prepaid expenses, derivative assets and other current assets | | 180,000 | | — | | 180,000 | |
Total current assets | | 2,841,000 | | — | | 2,841,000 | |
Property and equipment, net | | 4,297,000 | | 888,000 | (b) | 5,185,000 | |
Goodwill, net | | 353,000 | | 368,000 | (c) | 721,000 | |
Intangible assets, net | | — | | 1,613,000 | (d) | 1,613,000 | |
Deferred tax assets | | 546,000 | | (546,000 | )(e) | — | |
Other assets | | 395,000 | | 75,000 | (f),(g) | 470,000 | |
| | $ | 8,432,000 | | $ | 2,398,000 | | $ | 10,830,000 | |
| | | | | | | |
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY | | | | | | | |
Current liabilities: | | | | | | | |
Accounts payable | | $ | 874,000 | | $ | — | | $ | 874,000 | |
Accrued expenses and other current liabilities | | 825,000 | | — | | 825,000 | |
Income taxes payable | | 149,000 | | — | | 149,000 | |
Deferred tax liabilities current | | — | | 46,000 | (e) | 46,000 | |
Current portion of long-term debt | | 202,000 | | — | | 202,000 | |
Total current liabilities | | 2,050,000 | | 46,000 | | 2,096,000 | |
Long-term debt | | 6,105,000 | | (199,000 | )(h) | 5,906,000 | |
Deferred tax liabilities | | 534,000 | | 779,000 | (e) | 1,313,000 | |
Deferred rent liability | | 271,000 | | (271,000 | )(i) | — | |
Other non-current liabilities | | 201,000 | | — | | 201,000 | |
Stockholders’ (deficit) equity | | (729,000 | ) | 2,043,000 | (j) | 1,314,000 | |
| | $ | 8,432,000 | | $ | 2,398,000 | | $ | 10,830,000 | |
See notes on following page.
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Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet as of July 30, 2005
(a) Reflects the Unaudited Consolidated Balance Sheet of Toys as of July 30, 2005.
(b) Represents the adjustment to the value of the property and equipment to its fair value.
(c) Represents the residual purchase price over the fair value of assets acquired and liabilities assumed calculated as follows:
| | (Amounts in Thousands) | |
Purchase price | | $ | 6,605,000 | |
Less settlement of equity compensation paid by Toys | | (275,000 | ) |
Less sponsor and service provider fees | | (234,000 | ) |
Fair value of options outstanding based upon an option pricing model | | 13,000 | |
Fair value of Vornado’s previously held equity interest in Toys | | 21,000 | |
Net purchase price of acquisition | | 6,130,000 | |
Less net assets acquired | | (5,409,000 | ) |
Goodwill | | 721,000 | |
Less: Historical carrying amount of goodwill | | 353,000 | |
Fair value adjustment required | | $ | 368,000 | |
(d) Represents the recognition of the fair value of the following intangible assets:
| | Fair Value | | Useful Life | |
Trade Name and Trademarks | | $ | 1,072,000 | | Indefinite | |
Babies “R” Us Baby Registry | | 19,000 | | 1 year | |
Proprietary Technology | | 92,000 | | 5 years | |
Franchise Agreements | | 402,000 | | 1-15 years | |
Affinity Program | | 2,000 | | 7 years | |
Merchandise Licenses | | 26,000 | | 8 years | |
Total Identifiable Intangible Assets | | $ | 1,613,000 | | | |
(e) Represents the adjustment to deferred taxes for differences between the fair value and tax basis of acquired assets and liabilities and fair value of net operating loss and tax credit carryforwards.
(f) Reflects an adjustment of $82 million to increase Toys equity investment in Toys “R” Us — Japan to its fair value as determined by its quoted market price.
(g) Reflects the elimination of historical deferred financing costs of $7 million.
(h) Represents the adjustment to record long-term debt at its fair value.
(i) Reflects the elimination of historical deferred rent liability arising from the straight-lining of rents.
(j) Elimination of the accumulated deficit as a result of applying pro forma purchase price accounting; and the new ownership structure of Toys.
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Toys “R” Us, Inc.
Pro-Forma Condensed Consolidated Statement of Operations
For the 26 Weeks Ended July 30, 2005 (unaudited)
| | Toys Consolidated | | Pro Forma | | Toys Consolidated | |
(Amounts in Thousands) | | Historical | | Adjustments | | Pro Forma Adjusted | |
| | (a) | | | | | |
| | | | | | | |
Net sales | | $ | 4,231,000 | | $ | — | | $ | 4,231,000 | |
Cost of sales | | 2,763,000 | | — | | 2,763,000 | |
Gross margin | | 1,468,000 | | — | | 1,468,000 | |
| | | | | | | |
Selling, general and administrative expenses | | 1,302,000 | | 8,000 | (b) | 1,310,000 | |
Transaction and related costs | | 400,000 | | (367,000 | )(d) | 33,000 | |
Depreciation and amortization | | 183,000 | | (8,000 | )(e) | 175,000 | |
Restructuring and other charges | | 5,000 | | — | | 5,000 | |
Loss on early extinguishment of debt and contract settlement fees | | 22,000 | | (15,000 | )(c) | 7,000 | |
Total operating expenses | | 1,912,000 | | (382,000 | ) | 1,530,000 | |
Operating income (loss) | | (444,000 | ) | 382,000 | | (62,000 | ) |
Interest expense | | (86,000 | ) | (171,000 | )(f) | (257,000 | ) |
Interest income | | 20,000 | | (14,000 | )(g) | 6,000 | |
Income (loss) before income taxes | | (510,000 | ) | 197,000 | | (313,000 | ) |
Income tax (benefit) expense | | (110,000 | ) | 42,000 | (h) | (68,000 | ) |
Net income (loss) | | $ | (400,000 | ) | $ | 155,000 | | $ | (245,000 | ) |
| | | | | | | |
Vornado’s 32.9% interest | | $ | (131,800 | ) | $ | 51,073 | | $ | (80,727 | ) |
| | | | | | | |
Reconciliation of Net income (loss) to EBITDA (i): | | | | | | | |
Net income (loss) | | $ | (400,000 | ) | $ | 155,000 | | $ | (245,000 | ) |
Interest and debt expense | | 86,000 | | 171,000 | | 257,000 | |
Depreciation and amortization | | 183,000 | | (8,000 | ) | 175,000 | |
Income tax (benefit) expense | | (110,000 | ) | 42,000 | | (68,000 | ) |
EBITDA (i) | | $ | (241,000 | ) | $ | 360,000 | | $ | 119,000 | |
| | | | | | | |
Vornado’s 32.9% interest | | $ | (79,410 | ) | $ | 118,620 | | $ | 39,210 | |
See notes on following page.
4
Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations for the 26 Weeks Ended July 30, 2005:
(a) Reflects the Unaudited Consolidated Statement of Operations of Toys for the 26 Weeks Ended July 30, 2005.
(b) Records the management fee payable by Toys to the acquirors of Toys.
(c) Reflects the reversal of a one time charge of $15 million relating to the early termination of a synthetic lease arrangement for the Toys Global Store Support Center. This transaction was a condition to the acquisition closing.
(d) Represents the reversal of one time charges of $367 million for costs directly attributable to the acquisition, which consists of the following:
(i) direct transaction costs of $109 million,
(ii) compensation expenses relating to stock options and restricted stock of $222 million,
(iii) severance, bonuses and related payroll taxes of $36 million.
(e) Represents the following:
(i) a reduction in depreciation expense of $34 million for property and equipment recorded at its fair value. This decrease is due to a reduction in the value of furniture, fixtures and equipment and leasehold improvements based upon their fair value.
(ii) additional amortization expense of $26 million for acquired definite-lived intangible assets. The intangible assets have been amortized using the straight-line method over their respective estimated useful lives identified above. No amortization expense has been recognized for the Babies “R” Us Baby Registry, which was valued at $19 million, and one franchise agreement, which was valued at $20 million, as these assets will be amortized within a 12 month period and such expense is not indicative of Toys’ continuing operations.
(f) Represents the adjustment to interest expense including the $11 million relating to pre-existing debt $5 million from the impact of the adjustment to fair value of such debt and $6 million from the June 2005 termination of interest rate swaps.
| | (Amounts in Thousands) | |
New Debt | | | |
$1.0 billion senior facility, due fiscal 2006-2011 (at LIBOR plus 1.5%) all of which is outstanding | | $ | 25,000 | |
$800.0 million mortgage loan, due fiscal 2007 (at LIBOR plus 1.3%) | | 18,000 | |
$2.0 billion credit facility, due fiscal 2010 (at LIBOR plus 1.75% - 3.75%) of which $700.0 million is outstanding | | 18,000 | |
$1.9 billion bridge loan, due fiscal 2012 (at LIBOR plus 5.25%) all of which is outstanding | | 76,000 | |
Amortization of debt issuance costs | | 23,000 | |
| | 160,000 | |
| | | |
Pre-existing Debt | | | |
$250M Bonds, due 2006 (6.875%) | | 1,000 | |
$500M Bonds, due 2011 (7.625%) | | 3,000 | |
$400M Senior Notes, due 2013 (7.875%) | | 4,000 | |
$400M Senior Notes, due 2018 (7.375%) | | 3,000 | |
$200M Debentures, due 2021 (8.75%) | | — | |
| | 11,000 | |
| | | |
Total interest adjustment | | $ | 171,000 | |
(g) Reflects the reversal of interest income earned on cash used in the acquisition.
(h) Represents the tax effect of the pro forma adjustments based on statutory tax rates. The pro forma income tax adjustment excludes $36 million of tax benefit related to permanent differences for direct transaction costs.
(i) See page 3 of Exhibit 99.3 to this Current Report on Form 8-K/A for an explanation of EBITDA.
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Toys “R” Us, Inc.
Pro-Forma Funds From Operations (“FFO”)
For the 26 Weeks Ended July 30, 2005 (unaudited)
FFO is computed in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”). See page 4 of Exhibit 99.3 to this Current Report on Form 8-K/A for further information.
| | Toys Consolidated | | Pro Forma | | Toys Consolidated | |
(Amounts in Thousands) | | Historical | | Adjustments | | Pro Forma Adjusted | |
| | | | | | | |
Reconciliation of Net income (loss) to FFO: | | | | | | | |
Net (loss) income | | $ | (400,000 | ) | $ | 155,000 | | $ | (245,000 | ) |
Depreciation and amortization of real property | | 75,000 | | (19,000 | ) | 56,000 | |
Net loss on sale of real estate | | 12,000 | | — | | 12,000 | |
Proportionate share of adjustments to equity in income of partially-owned entities to arrive at FFO: | | | | | | | |
Depreciation and amortization of real property | | 9,000 | | — | | 9,000 | |
Income tax (benefit) effect of above adjustments | | (38,000 | ) | 8,000 | | (30,000 | ) |
FFO | | $ | (342,000 | ) | $ | 144,000 | | $ | (198,000 | ) |
| | | | | | | |
Vornado’s 32.9% interest | | $ | (112,689 | ) | $ | 47,448 | | $ | (65,241 | ) |
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Toys “R” Us, Inc.
Pro-Forma Condensed Consolidated Statement of Operations
For the Year Ended January 29, 2005
| | Toys Consolidated | | Pro Forma | | Toys Consolidated | |
(Amounts in Thousands) | | Historical | | Adjustments | | Pro Forma Adjusted | |
| | (a) | | | | | |
| | | | | | | |
Net sales | | $ | 11,100,000 | | $ | — | | $ | 11,100,000 | |
Cost of sales | | 7,506,000 | | — | | 7,506,000 | |
Gross margin | | 3,594,000 | | — | | 3,594,000 | |
| | | | | | | |
Selling, general and administrative expenses | | 2,932,000 | | 16,000 | (b) | 2,948,000 | |
Depreciation and amortization | | 354,000 | | (4,000 | )(c) | 350,000 | |
Restructuring and other charges | | 4,000 | | — | | 4,000 | |
Total operating expenses | | 3,290,000 | | 12,000 | | 3,302,000 | |
Operating income (loss) | | 304,000 | | (12,000 | ) | 292,000 | |
Interest expense | | (130,000 | ) | (403,000 | )(d) | (533,000 | ) |
Interest and other income | | 19,000 | | (16,000 | )(e) | 3,000 | |
Income (loss) before income taxes | | 193,000 | | (431,000 | ) | (238,000 | ) |
Income tax (benefit) expense | | (59,000 | ) | (171,000 | )(f) | (230,000 | ) |
Net income (loss) | | $ | 252,000 | | $ | (260,000 | ) | $ | (8,000 | ) |
| | | | | | | |
Vornado’s 32.9% interest | | $ | 83,034 | | $ | (85,670 | ) | $ | (2,636 | ) |
| | | | | | | |
Reconciliation of Net income (loss) to EBITDA (g): | | | | | | | |
Net income (loss) | | $ | 252,000 | | $ | (260,000 | ) | $ | (8,000 | ) |
Interest and debt expense | | 130,000 | | 403,000 | | 533,000 | |
Depreciation and amortization | | 354,000 | | (4,000 | ) | 350,000 | |
Income tax benefit | | (59,000 | ) | (171,000 | ) | (230,000 | ) |
EBITDA (g) | | $ | 677,000 | | $ | (32,000 | ) | $ | 645,000 | |
| | | | | | | |
Vornado’s 32.9% interest | | $ | 223,072 | | $ | (10,544 | ) | $ | 212,528 | |
See notes on following page
7
Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Year Ended January 29, 2005:
(a) Reflects the Consolidated Statement of Operations of Toys for the Year Ended January 29, 2005.
(b) Records the management fee payable by Toys to the acquirors of Toys.
(c) Represents the following:
(i) a reduction in depreciation expense of $56 million for property and equipment recorded at its fair value. This decrease is due to a reduction in the value of furniture, fixtures and equipment and leasehold improvements based upon their fair value.
(ii) additional amortization expense of $52 million for acquired definite-lived intangible assets. The intangible assets have been amortized using the straight-line method over their respective estimated useful lives. No amortization expense has been recognized for the Babies “R” Us Baby Registry, which is valued at $19 million, and one franchise agreement, which was valued at $20 million, as these assets will be amortized within a 12 month period and such expense is not indicative of Toys’ continuing operations.
(d) Represents the adjustment to interest expense including the $56 million relating to pre-existing debt $12 million from the impact of the adjustment to fair value of such debt and $44 million from the June 2005 termination of interest rate swaps.
| | (Amounts in
Thousands) | |
New Debt | | | |
$1.0 billion senior facility, due fiscal 2006-2011 (at LIBOR plus 1.5%) all of which is outstanding | | $ | 55,000 | |
$800.0 million Mortgage loan, due fiscal 2007 (at LIBOR plus 1.3%) | | 38,000 | |
$2.0 billion credit facility, due fiscal 2010 (at LIBOR plus 1.75% - 3.75%) of which $700.0 million is outstanding | | 39,000 | |
$1.9 billion bridge loan, due fiscal 2012 (at LIBOR plus 5.25%) all of which is outstanding | | 165,000 | |
Amortization of debt issuance costs | | 50,000 | |
| | 347,000 | |
Pre-existing Debt | | | |
$250M Bonds, due 2006 (6.875%) | | 6,000 | |
$500M Bonds, due 2011 (7.625%) | | 22,000 | |
$400M Senior Notes, due 2013 (7.875%) | | 14,000 | |
$400M Senior Notes, due 2018 (7.375%) | | 14,000 | |
$200M Debentures, due 2021 (8.75%) | | — | |
| | 56,000 | |
| | | |
Total interest adjustment | | $ | 403,000 | |
(e) Reflects the reversal of interest income earned on cash used in the acquisition.
(f) Represents the tax effect of the pro forma adjustments based on statutory tax rates.
(g) See page 3 of Exhibit 99.3 to this Current Report on Form 8-K/A for an explanation of EBITDA.
8
Toys “R” Us, Inc.
Pro-Forma Funds From Operations (“FFO”)
For the Year Ended January 29, 2005
FFO is computed in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”). See page 4 of Exhibit 99.3 to this Current Report on Form 8-K/A for further information.
| | Toys Consolidated | | Pro Forma | | Toys Consolidated | |
(Amounts in Thousands) | | Historical | | Adjustments | | Pro Forma Adjusted | |
| | | | | | | |
Reconciliation of Net income (loss) to FFO: | | | | | | | |
Net income (loss) | | $ | 252,000 | | $ | (260,000 | ) | $ | (8,000 | ) |
Depreciation and amortization of real property | | 147,000 | | (35,000 | ) | 112,000 | |
Net gains on sale of real estate | | (55,000 | ) | — | | (55,000 | ) |
Proportionate share of adjustments to equity in income of partially-owned entities to arrive at FFO: | | | | | | | |
Depreciation and amortization of real property | | 17,000 | | — | | 17,000 | |
Income tax effect of above adjustments | | (43,000 | ) | 14,000 | | (29,000 | ) |
FFO | | $ | 318,000 | | $ | (281,000 | ) | $ | 37,000 | |
| | | | | | | |
Vornado’s 32.9% interest | | $ | 104,622 | | $ | (92,449 | ) | $ | 12,173 | |
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