Attached files
| file | filename |
|---|---|
| EXCEL - IDEA: XBRL DOCUMENT - Toys R Us Property Co I, LLC | Financial_Report.xls |
| EX-32.1 - CERTIFICATION OF P.E.O. AND P.F.O. PURSUANT TO SECTION 906 - Toys R Us Property Co I, LLC | truprop110272012-exx321.htm |
| EX-31.1 - CERTIFICATION OF P.E.O. AND P.F.O. PURSUANT TO SECTION 302 - Toys R Us Property Co I, LLC | truprop110272012-exx311.htm |
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 October 27, 2012
Commission file number 333-164018
_________________________________
Toys “R” Us Property Company I, LLC
(Exact name of registrant as specified in its charter)
_________________________________
Delaware | 04-3829291 | |
(State or other jurisdiction of incorporation or organization) | (IRS Employer 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)
_________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | ¨ |
Non-accelerated filer | x (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
As of December 11, 2012, all of our outstanding membership interests were privately held by our sole member, Wayne Real Estate Holding Company, LLC.
TOYS “R” US PROPERTY COMPANY I, LLC
TABLE OF CONTENTS
PAGE | |
PART 1 – FINANCIAL INFORMATION
Item 1. | Financial Statements |
TOYS “R” US PROPERTY COMPANY I, LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands) | October 27, 2012 | January 28, 2012 | ||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash | $ | 96,725 | $ | 72,111 | ||||
Due from affiliate, net | 14,768 | 9,882 | ||||||
Lease allowance receivable | 2,727 | — | ||||||
Prepaid expenses | 2,742 | 2,202 | ||||||
Total current assets | 116,962 | 84,195 | ||||||
Real Estate, Net: | ||||||||
Land | 274,228 | 277,001 | ||||||
Buildings, net | 478,848 | 493,883 | ||||||
Property and leasehold improvements, net | 97,358 | 109,683 | ||||||
Total real estate, net | 850,434 | 880,567 | ||||||
Straight-line rent receivable from affiliate | 153,048 | 129,411 | ||||||
Debt issuance costs | 13,809 | 16,007 | ||||||
Other assets | 296 | 283 | ||||||
Total Assets | $ | 1,134,549 | $ | 1,110,463 | ||||
LIABILITIES AND MEMBER’S CAPITAL | ||||||||
Current Liabilities: | ||||||||
Accrued interest | $ | 29,139 | $ | 3,928 | ||||
Real estate taxes payable | 16,336 | 11,075 | ||||||
Deferred third party rent liabilities | 1,508 | 1,175 | ||||||
Deferred related party revenue | 1,812 | 1,365 | ||||||
Other current liabilities | 1,198 | 1,422 | ||||||
Total current liabilities | 49,993 | 18,965 | ||||||
Long-term debt | 935,501 | 933,516 | ||||||
Deferred third party rent liabilities | 114,702 | 110,159 | ||||||
Other non-current liabilities | 1,462 | 1,537 | ||||||
Member's capital | 32,891 | 46,286 | ||||||
Total Liabilities and Member's Capital | $ | 1,134,549 | $ | 1,110,463 | ||||
See accompanying notes to the Condensed Consolidated Financial Statements.
1
TOYS “R” US PROPERTY COMPANY I, LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
(In thousands) | October 27, 2012 | October 29, 2011 | October 27, 2012 | October 29, 2011 | ||||||||||||
Rental revenues: | ||||||||||||||||
Base rents | $ | 60,437 | $ | 62,139 | $ | 182,095 | $ | 183,327 | ||||||||
Tenant reimbursements | 9,676 | 10,712 | 29,359 | 31,218 | ||||||||||||
Total revenues | 70,113 | 72,851 | 211,454 | 214,545 | ||||||||||||
Depreciation | 7,314 | 8,046 | 23,985 | 24,471 | ||||||||||||
Rental expense | 11,859 | 11,958 | 35,828 | 36,101 | ||||||||||||
Common area maintenance expenses | 9,676 | 10,712 | 29,359 | 31,218 | ||||||||||||
Other operating expenses | 1,471 | 1,583 | 3,726 | 4,240 | ||||||||||||
Total operating expenses | 30,320 | 32,299 | 92,898 | 96,030 | ||||||||||||
Operating earnings | 39,793 | 40,552 | 118,556 | 118,515 | ||||||||||||
Interest expense | 26,751 | 26,687 | 80,710 | 80,600 | ||||||||||||
Earnings from continuing operations | 13,042 | 13,865 | 37,846 | 37,915 | ||||||||||||
Earnings from discontinued operations | 3,724 | 3,144 | 5,250 | 8,365 | ||||||||||||
Net earnings | $ | 16,766 | $ | 17,009 | $ | 43,096 | $ | 46,280 | ||||||||
See accompanying notes to the Condensed Consolidated Financial Statements.
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TOYS “R” US PROPERTY COMPANY I, LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
39 Weeks Ended | ||||||||
(In thousands) | October 27, 2012 | October 29, 2011 | ||||||
Cash Flows from Operating Activities: | ||||||||
Net earnings | $ | 43,096 | $ | 46,280 | ||||
Adjustments to reconcile Net earnings to net cash provided by operating activities: | ||||||||
Depreciation | 25,397 | 27,189 | ||||||
Amortization of debt issuance costs | 2,198 | 2,198 | ||||||
Amortization of original issue discount | 1,985 | 1,785 | ||||||
Loss (gain) on sale of real estate | 662 | (216 | ) | |||||
Other non-cash charges | (75 | ) | 64 | |||||
Changes in operating assets and liabilities: | ||||||||
Due from affiliate, net and Lease allowance receivable | (7,613 | ) | (4,703 | ) | ||||
Prepaid expenses | (540 | ) | (869 | ) | ||||
Straight-line rent receivable from affiliate, Other assets and Deferred third party rent liabilities | (19,137 | ) | (20,896 | ) | ||||
Accrued interest, Real estate taxes payable and Other current liabilities | 30,248 | 31,381 | ||||||
Deferred related party revenue | 447 | (11 | ) | |||||
Net cash provided by operating activities | 76,668 | 82,202 | ||||||
Cash Flows from Investing Activities: | ||||||||
Proceeds from the sale of real estate | 4,437 | 8,588 | ||||||
Capital expenditures | — | (1,050 | ) | |||||
Net cash provided by investing activities | 4,437 | 7,538 | ||||||
Cash Flows from Financing Activities: | ||||||||
Distributions | (56,491 | ) | (50,225 | ) | ||||
Long-term debt borrowings | — | 1,085 | ||||||
Net cash used in financing activities | (56,491 | ) | (49,140 | ) | ||||
Cash: | ||||||||
Net increase during period | 24,614 | 40,600 | ||||||
Cash at beginning of period | 72,111 | 39,708 | ||||||
Cash at end of period | $ | 96,725 | $ | 80,308 | ||||
See accompanying notes to the Condensed Consolidated Financial Statements.
3
TOYS “R” US PROPERTY COMPANY I, LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN MEMBER’S CAPITAL
(Unaudited)
(In thousands) | Member's Capital | |||
Balance, January 29, 2011 | $ | 43,085 | ||
Net earnings | 46,280 | |||
Distributions | (50,225 | ) | ||
Balance, October 29, 2011 | $ | 39,140 | ||
Balance, January 28, 2012 | $ | 46,286 | ||
Net earnings | 43,096 | |||
Distributions | (56,491 | ) | ||
Balance, October 27, 2012 | $ | 32,891 | ||
See accompanying notes to the Condensed Consolidated Financial Statements.
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TOYS “R” US PROPERTY COMPANY I, LLC AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of presentation
As used herein, the “Company,” “we,” “us,” or “our” means Toys “R” Us Property Company I, LLC and its subsidiaries (“TRU Propco I”), except as expressly indicated or unless the context otherwise requires. TRU Propco I was formed in September 2005 as part of a legal reorganization of the businesses of Toys “R” Us, Inc. (“TRU”). TRU, through various subsidiaries, operates or licenses Toys “R” Us and Babies “R” Us stores in the United States and foreign countries and jurisdictions. We are indirectly owned by TRU through our holding company, Wayne Real Estate Holding Company, LLC (“Wayne Holdings”), a direct wholly-owned subsidiary of TRU. We generate substantially all of our revenues, earnings and cash flows by leasing or subleasing properties primarily to our affiliate, Toys “R” Us-Delaware, Inc. (“Toys-Delaware”). The Company is one reportable segment.
The Condensed Consolidated Balance Sheets as of October 27, 2012 and January 28, 2012, the Condensed Consolidated Statements of Operations for the thirteen and thirty-nine weeks ended October 27, 2012 and October 29, 2011, the Condensed Consolidated Statements of Cash Flows and the Condensed Consolidated Statements of Changes in Member’s Capital for the thirty-nine weeks ended October 27, 2012 and October 29, 2011, have been prepared by us in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim reporting, and in accordance with the requirements of this Quarterly Report on Form 10-Q. Our interim Condensed Consolidated Financial Statements are unaudited and are subject to year-end adjustments. In the opinion of management, the financial statements include all known adjustments (which consist primarily of normal, recurring accruals, estimates and assumptions that impact the financial statements) necessary to present fairly the financial position at the balance sheet dates and the results of operations for the thirteen and thirty-nine weeks then ended. The Condensed Consolidated Balance Sheet at January 28, 2012, presented herein, has been derived from our audited balance sheet included in our Annual Report on Form 10-K for the fiscal year ended January 28, 2012, but does not include all disclosures required by GAAP. These financial statements should be read in conjunction with the financial statements and footnotes thereto included within our Annual Report on Form 10-K for the fiscal year ended January 28, 2012.
Prior Period Correction
In the third quarter of fiscal 2011, we recorded an approximate $2 million adjustment to increase Straight-line rent receivable from affiliate on our Condensed Consolidated Balance Sheet to correct a non-cash cumulative prior period straight-line lease accounting error. In addition, a corresponding adjustment was recorded of approximately $2 million to increase Base rents for the thirteen and thirty-nine weeks ended October 29, 2011 on the Condensed Consolidated Statement of Operations. Management concluded that this correction did not have a material impact on the financial statements for the thirteen and thirty-nine weeks ended October 29, 2011 or any previously reported financial statements.
2. Real estate, net
(In thousands) | October 27, 2012 | January 28, 2012 | ||||||
Land | $ | 274,228 | $ | 277,001 | ||||
Buildings | 746,120 | 751,744 | ||||||
Property and leasehold improvements | 402,878 | 407,060 | ||||||
1,423,226 | 1,435,805 | |||||||
Less: accumulated depreciation | (572,792 | ) | (555,238 | ) | ||||
Total | $ | 850,434 | $ | 880,567 | ||||
3. Discontinued operations
During the thirty-nine weeks ended October 27, 2012, we sold one property and a non-operating parcel, which were previously classified as held for sale, to unrelated third parties for gross proceeds of approximately $4 million, resulting in a net loss of less than $1 million. Additionally, we had an early termination of a ground lease and had two leases expire with unrelated third party landlords for which we opted not to exercise the renewal options. The Amended and Restated Master Lease Agreement
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(the “TRU Propco I Master Lease”) requires Toys-Delaware to make a payment to the Company upon early termination of a lease, as set forth under the terms of the TRU Propco I Master Lease, or the successful execution of the sale of such properties by the Company to a third party if the proceeds from the sale are less than the net present value of the base rent for such property over the remaining term for such property, discounted at 10% per annum. As per the terms of the TRU Propco I Master Lease, we recorded termination payments of approximately $5 million during the thirty-nine weeks ended October 27, 2012 in Earnings from discontinued operations on the Condensed Consolidated Statement of Operations.
During the thirty-nine weeks ended October 29, 2011, we sold three owned properties to unrelated third parties for gross proceeds of approximately $9 million, resulting in a net gain of less than $1 million. Additionally, we had an early termination of a ground lease. We recorded termination payments of approximately $6 million for the thirty-nine weeks ended October 29, 2011 in Earnings from discontinued operations on the Condensed Consolidated Statement of Operations.
We reported the operating results for these properties as Earnings from discontinued operations on the Condensed Consolidated Statements of Operations for the thirteen and thirty-nine weeks ended October 27, 2012 and October 29, 2011. The operating results for these properties classified as discontinued operations through October 27, 2012 were derived from our historical financial information and have been segregated from continuing operations and reported separately on the Condensed Consolidated Statements of Operations for the thirteen and thirty-nine weeks ended October 27, 2012 and October 29, 2011, respectively. These amounts have been summarized below:
13 Weeks Ended | ||||||||
(In thousands) | October 27, 2012 | October 29, 2011 | ||||||
Total revenues | $ | 4,315 | $ | 2,888 | ||||
Earnings from discontinued operations | $ | 3,724 | $ | 3,144 | ||||
39 Weeks Ended | ||||||||
(In thousands) | October 27, 2012 | October 29, 2011 | ||||||
Total revenues | $ | 5,854 | $ | 9,250 | ||||
Earnings from discontinued operations | $ | 5,250 | $ | 8,365 | ||||
4. Long-term debt
As of October 27, 2012 and January 28, 2012, the carrying value of our debt was $936 million and $934 million, respectively.
10.75% Senior Notes, due fiscal 2017 ($933 million at October 27, 2012)
As of October 27, 2012 and January 28, 2012, the carrying value of our 10.75% senior unsecured notes due fiscal 2017 (the “Notes”) was $933 million and $931 million, respectively, with fair values of approximately $1,026 million and $1,064 million, respectively. The fair value of the Notes was estimated using Level 2 inputs, which represent quoted market prices of our debt instrument.
In accordance with the indenture governing the Notes, we commenced a tender offer on May 14, 2012 to purchase up to an aggregate principal amount of approximately $33 million of the Notes for approximately $32 million in cash. The tender offer expired on June 13, 2012, with no holders opting to tender at that time. Therefore, as permitted by the indenture, we made a cash distribution of approximately $32 million to TRU on June 21, 2012.
Lease Financing Obligation Associated with a Capital Project
During fiscal 2011, we were significantly involved in the construction of a leased store which included non-standard tenant improvements. As a result of our involvement, we are deemed the “owner” for accounting purposes and are required to capitalize the construction costs on our Condensed Consolidated Balance Sheet. Upon completion of the project, we performed a sale-leaseback analysis pursuant to Financial Accounting Standards Board Accounting Standards Codification Topic 840, “Leases”, and determined that we were unable to derecognize the assets capitalized during construction. Therefore, in conjunction with this lease, as of October 27, 2012 and January 28, 2012, we had a financing obligation of $3 million, respectively. The rental payments to the landlord are recognized as a reduction of the financing obligation and interest expense. We also continue to recognize rent expense on the ground lease for the land on which this asset was constructed.
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5 . Member’s capital
Wayne Holdings is the direct owner of 100% of our limited liability company interests. We evaluate our cash balances on an ongoing basis and periodically distribute cash to our ultimate parent company, TRU. From time to time, a portion of our cash may also be used to tender for a portion of the outstanding Notes as permitted by the indenture governing the Notes. If holders of the Notes elect not to tender their Notes, we may, at such time, in accordance with the indenture governing the Notes, make certain restricted payments, including distributing cash to TRU.
In accordance with the indenture governing the Notes, we commenced a tender offer on May 14, 2012 to purchase up to an aggregate principal amount of approximately $33 million of the Notes for approximately $32 million in cash. The tender offer expired on June 13, 2012, with no holders opting to tender at that time. Therefore, as permitted by the indenture, we made cash distributions of approximately $32 million to TRU on June 21, 2012.
During the thirty-nine weeks ended October 27, 2012, we made cash distributions of $43 million and $13 million in dividends and return of capital, respectively, which includes the cash distributions of approximately $32 million to TRU on June 21, 2012 related to the expired tender offer. During the thirty-nine weeks ended October 29, 2011, we made cash distributions of $46 million and $4 million in dividends and return of capital, respectively.
6. Related party transactions
Rental Revenues
Our Rental revenues are derived from payments received under the TRU Propco I Master Lease we have entered into with Toys-Delaware. The TRU Propco I Master Lease provides for Toys-Delaware to reimburse us for property related costs including, among others, real estate taxes and common area maintenance charges. Some of these costs are directly paid by Toys-Delaware and are recorded as both an expense and a tenant reimbursement. During the thirteen weeks ended October 27, 2012 and October 29, 2011, we earned related party Base rent revenues of approximately $60 million and $62 million, respectively, excluding termination payments from Toys-Delaware. During the thirty-nine weeks ended October 27, 2012 and October 29, 2011, we earned related party Base rent revenues of approximately $180 million and $183 million, respectively, excluding termination payments from Toys-Delaware. In addition, we recorded Tenant reimbursements of approximately $10 million and $11 million under our leasing arrangements with Toys-Delaware during the thirteen weeks ended October 27, 2012 and October 29, 2011, respectively. During the thirty-nine weeks ended October 27, 2012 and October 29, 2011, we recorded Tenant reimbursements of approximately $29 million and $32 million, respectively.
Termination Payments
As discussed in Note 3 entitled “Discontinued operations”, the TRU Propco I Master Lease requires Toys-Delaware to make a payment to the Company upon early termination of a lease, as set forth under the terms of the TRU Propco I Master Lease, or the successful execution of the sale of such properties by the Company to a third party if the proceeds from the sale are less than the net present value of the base rent for such property over the remaining term for such property, discounted at 10% per annum. We recorded termination payments of approximately $4 million and $2 million for the thirteen weeks ended October 27, 2012 and October 29, 2011, respectively. We recorded termination payments of approximately $5 million and $6 million for the thirty-nine weeks ended October 27, 2012 and October 29, 2011, respectively, in Earnings from discontinued operations on the Condensed Consolidated Statement of Operations.
Management Service Fees
Toys-Delaware provides a majority of the centralized corporate functions, including accounting, human resources, legal, tax and treasury services to TRU, other affiliates and us under a Domestic Services Agreement (“Agreement”). The costs are based on a formula for each affiliate, as defined in the Agreement, and are recorded in Other operating expenses on the Condensed Consolidated Statements of Operations. During each of the thirteen weeks ended October 27, 2012 and October 29, 2011, the amounts charged to us for these services were approximately $1 million. During each of the thirty-nine weeks ended October 27, 2012 and October 29, 2011, the amounts charged to us for these services were approximately $3 million.
Due from affiliate, net
As of October 27, 2012 and January 28, 2012, Due from affiliate, net of $15 million and $10 million, respectively, primarily represents real estate taxes, certain property reimbursements and base rents owed to us by Toys-Delaware.
7
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
As used herein the “Company,” “we,” “us,” or “our” means Toys “R” Us Property Company I, LLC and its subsidiaries (“TRU Propco I”), except as expressly indicated or unless the content otherwise requires. The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help facilitate an understanding of our financial condition and our historical results of operations for the periods presented. This MD&A should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended January 28, 2012 and Condensed Consolidated Financial Statements and the accompanying notes thereto, and contains forward-looking statements that involve risks and uncertainties. See “Forward-Looking Statements” below.
Our Business
We are a special purpose entity, owned indirectly by Toys “R” Us, Inc. (“TRU”) and formed in September 2005. Certain of our wholly-owned special purpose subsidiaries own fee and leasehold interests in 347 properties in various retail markets throughout the United States. Under an operating company/property company structure, we lease these properties on a triple-net basis, to Toys “R” Us – Delaware, Inc. (“Toys-Delaware”), the operating entity for all of TRU’s North American businesses, which operates the properties as Toys “R” Us stores, Babies “R” Us stores or side-by-side stores, or subleases them to alternative retailers. Substantially all of our revenues and cash flows are derived from payments from Toys-Delaware under the Amended and Restated Master Lease Agreement (the “TRU Propco I Master Lease”). For quarterly financial statements and other information about our master tenant, Toys-Delaware, see Exhibit 99.1 to this report.
Results of Operations
Earnings from Continuing Operations
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||||||||||||||||
($ In thousands) | October 27, 2012 | October 29, 2011 | $ Change | % Change | October 27, 2012 | October 29, 2011 | $ Change | % Change | ||||||||||||||||||||||
Earnings from continuing operations | $ | 13,042 | $ | 13,865 | $ | (823 | ) | (5.9 | )% | $ | 37,846 | $ | 37,915 | $ | (69 | ) | (0.2 | )% | ||||||||||||
Earnings from continuing operations decreased by $0.8 million and a nominal amount for the thirteen and thirty-nine weeks ended October 27, 2012, respectively, compared to the same periods last year due primarily to a reduction in Total revenues.
Total Revenues
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||||||||||||||||
($ In thousands) | October 27, 2012 | October 29, 2011 | $ Change | % Change | October 27, 2012 | October 29, 2011 | $ Change | % Change | ||||||||||||||||||||||
Total revenues | $ | 70,113 | $ | 72,851 | $ | (2,738 | ) | (3.8 | )% | $ | 211,454 | $ | 214,545 | $ | (3,091 | ) | (1.4 | )% | ||||||||||||
Total revenues decreased by $2.8 million, or 3.8%, to $70.1 million for the thirteen weeks ended October 27, 2012, compared to $72.9 million for the thirteen weeks ended October 29, 2011. The decrease was due to a decline in Base rents predominantly as a result of a non-cash cumulative straight-line lease accounting correction recorded in the third quarter of fiscal 2011, as well as a decrease in Tenant reimbursements.
Total revenues decreased by $3.0 million, or 1.4%, to $211.5 million for the thirty-nine weeks ended October 27, 2012, compared to $214.5 million for the thirty-nine weeks ended October 29, 2011. The decrease was due to a decline in Tenant reimbursements and Base rents predominantly as a result of a non-cash cumulative straight-line lease accounting correction recorded in the third quarter of fiscal 2011.
Depreciation
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||||||||||||||||
($ In thousands) | October 27, 2012 | October 29, 2011 | $ Change | % Change | October 27, 2012 | October 29, 2011 | $ Change | % Change | ||||||||||||||||||||||
Depreciation | $ | 7,314 | $ | 8,046 | $ | (732 | ) | (9.1 | )% | $ | 23,985 | $ | 24,471 | $ | (486 | ) | (2.0 | )% | ||||||||||||
Depreciation decreased by $0.7 million and $0.5 million for the thirteen and thirty-nine weeks ended October 27, 2012, respectively, compared to the same periods last year.
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Rental Expense
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||||||||||||||||
($ In thousands) | October 27, 2012 | October 29, 2011 | $ Change | % Change | October 27, 2012 | October 29, 2011 | $ Change | % Change | ||||||||||||||||||||||
Rental expense | $ | 11,859 | $ | 11,958 | $ | (99 | ) | (0.8 | )% | $ | 35,828 | $ | 36,101 | $ | (273 | ) | (0.8 | )% | ||||||||||||
Rental expense decreased by a nominal amount for the thirteen and thirty-nine weeks ended October 27, 2012, compared to the same periods last year.
Common Area Maintenance Expenses
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||||||||||||||||
($ In thousands) | October 27, 2012 | October 29, 2011 | $ Change | % Change | October 27, 2012 | October 29, 2011 | $ Change | % Change | ||||||||||||||||||||||
Common area maintenance expenses | $ | 9,676 | $ | 10,712 | $ | (1,036 | ) | (9.7 | )% | $ | 29,359 | $ | 31,218 | $ | (1,859 | ) | (6.0 | )% | ||||||||||||
Common area maintenance expenses decreased by $1.0 million, or 9.7%, to $9.7 million for the thirteen weeks ended October 27, 2012, compared to $10.7 million for the thirteen weeks ended October 29, 2011, and decreased by $1.8 million, or 6.0%, to $29.4 million for the thirty-nine weeks ended October 27, 2012, compared to $31.2 million for the thirty-nine weeks ended October 29, 2011. These expenses are fully reimbursed by our tenant under the TRU Propco I Master Lease, and are reflected in Tenant reimbursements, which is a component of Total revenues.
Other Operating Expenses
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||||||||||||||||
($ In thousands) | October 27, 2012 | October 29, 2011 | $ Change | % Change | October 27, 2012 | October 29, 2011 | $ Change | % Change | ||||||||||||||||||||||
Other operating expenses | $ | 1,471 | $ | 1,583 | $ | (112 | ) | (7.1 | )% | $ | 3,726 | $ | 4,240 | $ | (514 | ) | (12.1 | )% | ||||||||||||
Other operating expenses decreased by a nominal amount for the thirteen and thirty-nine weeks ended October 27, 2012, compared to the same periods last year.
Interest Expense
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||||||||||||||||
($ In thousands) | October 27, 2012 | October 29, 2011 | $ Change | % Change | October 27, 2012 | October 29, 2011 | $ Change | % Change | ||||||||||||||||||||||
Interest expense | $ | 26,751 | $ | 26,687 | $ | 64 | 0.2 | % | $ | 80,710 | $ | 80,600 | $ | 110 | 0.1 | % | ||||||||||||||
Interest expense increased by a nominal amount for the thirteen and thirty-nine weeks ended October 27, 2012, compared to the same periods last year.
Earnings from Discontinued Operations
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||||||||||||||||
($ In thousands) | October 27, 2012 | October 29, 2011 | $ Change | % Change | October 27, 2012 | October 29, 2011 | $ Change | % Change | ||||||||||||||||||||||
Earnings from discontinued operations | $ | 3,724 | $ | 3,144 | $ | 580 | 18.4 | % | $ | 5,250 | $ | 8,365 | $ | (3,115 | ) | (37.2 | )% | |||||||||||||
Earnings from discontinued operations increased by $0.6 million to $3.7 million for the thirteen weeks ended October 27, 2012, compared to $3.1 million for the thirteen weeks ended October 29, 2011. The increase was primarily due to an increase in termination payments of approximately $1.9 million from Toys-Delaware as required under the TRU Propco I Master Lease, as compared to the same period last year. See Note 6 to the Condensed Financial Statements entitled “Related party transactions” for further details.
Earnings from discontinued operations decreased by $3.1 million to $5.3 million for the thirty-nine weeks ended October 27, 2012, compared to earnings of $8.4 million for the thirty-nine weeks ended October 29, 2011. The decrease was primarily due
9
to a reduction in Base rents and a decrease in termination payments of $0.9 million compared to the same period last year. See Note 3 to the Condensed Financial Statements entitled “Discontinued operations” for further details.
Liquidity and Capital Resources
Overview
As of October 27, 2012, we were in compliance with all of our covenants related to the 10.75% senior unsecured notes due fiscal 2017 (the “Notes”).
Our largest source of operating cash flows is cash collections from our lessees. In general, we utilize our cash to service debt, pay normal operating costs and at the discretion of our sole member, based on the recommendation of our management, and as permitted by the indenture governing the Notes, declare and pay dividends or make distributions. From time to time, a portion of our cash may also be used to tender for a portion of the outstanding Notes as permitted by the indenture governing the Notes. Refer to Note 4 to the Condensed Consolidated Financial Statements entitled “Long-term debt” for further details regarding the tender for the Notes.
Additionally, the indenture governing the Notes allows us to re-invest the net cash proceeds from the sale of properties within 720 days subsequent to the receipt of the proceeds. If net cash proceeds are not reinvested within 720 days of receipt, the net cash proceeds are deemed to be excess proceeds (“Excess Proceeds”). When the aggregate amount of Excess Proceeds exceeds $10.0 million, we are required to make an offer to all holders of the Notes within 30 days to purchase Notes with the Excess Proceeds. Although we have recognized sales proceeds in excess of $10.0 million as of October 27, 2012, these are not classified as Excess Proceeds given the time that has elapsed from the sale of the properties.
We have been able to meet our cash needs principally by using cash on hand and cash flows from operations and we believe that cash from operations along with existing cash will be sufficient to fund expected cash flow requirements for the next twelve months.
Cash Flows
39 Weeks Ended | ||||||||||||
(In thousands) | October 27, 2012 | October 29, 2011 | Change | |||||||||
Net cash provided by operating activities | $ | 76,668 | $ | 82,202 | $ | (5,534 | ) | |||||
Net cash provided by investing activities | 4,437 | 7,538 | (3,101 | ) | ||||||||
Net cash used in financing activities | (56,491 | ) | (49,140 | ) | (7,351 | ) | ||||||
Net increase during period in cash | $ | 24,614 | $ | 40,600 | $ | (15,986 | ) | |||||
Cash Flows Provided by Operating Activities
During the thirty-nine weeks ended October 27, 2012, net cash provided by operating activities was $76.7 million compared to $82.2 million for the thirty-nine weeks ended October 29, 2011. The decrease in net cash provided by operating activities was primarily due to a decline in termination payments received from Toys-Delaware as required under the TRU Propco I Master Lease of approximately $3.7 million for early lease terminations and properties sold during the thirty-nine weeks ended October 27, 2012, as compared to the same period last year.
Cash Flows Provided by Investing Activities
During the thirty-nine weeks ended October 27, 2012, net cash provided by investing activities was $4.4 million compared to $7.5 million for the thirty-nine weeks ended October 29, 2011. The decrease in net cash provided by investing activities was primarily due to a reduction in proceeds from the sale of real estate of $4.2 million.
Cash Flows Used in Financing Activities
During the thirty-nine weeks ended October 27, 2012, net cash used in financing activities was $56.5 million compared to $49.1 million for the thirty-nine weeks ended October 29, 2011. The increase in net cash used in financing activities was primarily due to a $6.3 million increase in Distributions, as compared to the thirty-nine weeks ended October 29, 2011.
Debt
Refer to the Annual Report on Form 10-K and Note 4 to the Condensed Consolidated Financial Statements entitled “Long-term debt” for further details regarding our debt.
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Contractual Obligations and Commitments
Our contractual obligations consist mainly of payments related to Long-term debt and related interest and operating leases related to real estate used in the operation of our business. Refer to the “Contractual Obligations and Commitments” section of the Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended January 28, 2012, for details on our contractual obligations and commitments.
Critical Accounting Policies
Our Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of these financial statements requires us to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosures of contingent assets and liabilities as of the date of the financial statements and during the applicable periods. We base these estimates on historical experience and on other factors that we believe are reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions and could have a material impact on our Condensed Consolidated Financial Statements. Refer to the Annual Report on Form 10-K for the fiscal year ended January 28, 2012, for a discussion of critical accounting policies.
Recently Adopted Accounting Pronouncements
In May 2011, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“ASU 2011-04”). The amendments in this ASU generally represent clarification of Topic 820, but also include instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements has changed. This update results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP and International Financial Reporting Standards. As of January 29, 2012, the Company adopted ASU 2011-04 and applied this guidance prospectively. The adoption of ASU 2011-04 did not have an impact on our Condensed Consolidated Financial Statements.
Forward-Looking Statements
This Quarterly Report on Form 10-Q, the other reports and documents that we have filed or may in the future file with the
Securities and Exchange Commission and other publicly released materials and statements, both oral and written, that we have
made or may make in the future, may contain “forward looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. All statements herein or therein that are not historical facts, including statements about our beliefs or expectations, are forward-looking statements. We generally identify these statements by words or phrases, such as “anticipate,” “estimate,” “plan,” “project,” “expect,” “believe,” “intend,” “foresee,” “forecast,” “will,” “may,” “outlook,” and similar words or phrases. These statements discuss, among other things, our strategy, future financial or operational performance, anticipated cost savings, results of restructurings, cash flows generated from operating activities, anticipated developments, future financings, targets and future occurrences and trends.
These statements are subject to risks, uncertainties, and other factors, including, among others, competition in the retail industry, seasonality of Toys-Delaware’s business, changes in consumer preferences and consumer spending patterns, general economic conditions in the United States and other countries in which Toys-Delaware conducts its business, Toys-Delaware’s ability to implement its strategy, our, Toys-Delaware’s and TRU’s respective substantial levels of indebtedness and related debt-service obligations and the covenants in their and our respective debt agreements, availability of adequate financing to us, Toys-Delaware and TRU, Toys-Delaware’s dependence on key vendors of merchandise, international events affecting the delivery of toys and other products to Toys-Delaware’s stores, and such risks, uncertainties and factors set forth under Item 1A entitled “RISK FACTORS” of our Annual Report on Form 10-K filed on April 27, 2012 and in our reports and documents filed with the Securities and Exchange Commission (which reports and documents should be read in conjunction with this Quarterly Report on Form 10-Q). We believe that all forward-looking statements are based on reasonable assumptions when made; however, we caution that it is impossible to predict actual results or outcomes or the effects of risks, uncertainties or other factors on anticipated results or outcomes and that, accordingly, one should not place undue reliance on these statements. Forward-looking statements speak only as of the date they were made, and we undertake no obligation to update these statements in light of subsequent events or developments, unless required by the Securities and Exchange Commission's rules and regulations. Actual results and outcomes may differ materially from anticipated results or outcomes discussed in any forward-looking statement.
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
There has been no material change in our exposure to market risk during the thirty-nine weeks ended October 27, 2012. For a discussion of our exposure to market risk, refer to Item 7A entitled “QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK” in our Annual Report on Form 10-K for the fiscal year ended January 28, 2012.
Item 4. | Controls and Procedures |
Disclosure Controls and Procedures
Disclosure controls and procedures are the controls and other procedures that are designed to provide reasonable assurance that information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including the principal executive and principal financial officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
We have evaluated, under the supervision and with the participation of our management, including our principal executive and principal financial officer, the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act as of the end of the period covered by this report.
Based on that evaluation, our principal executive and principal financial officer has concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q to accomplish their objectives at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the third quarter of fiscal 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. | Legal Proceedings |
Although we do not currently have material legal proceedings pending against us, in the future, we may be involved in various lawsuits, claims and proceedings incident to the ordinary course of business. The results of litigation are inherently unpredictable. Any claims against us, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of management time and result in diversion of significant resources. The results of these lawsuits, claims and proceedings cannot be predicted with certainty.
Item 1A. | Risk Factors |
As of the date of this report, there have been no material changes to the information related to Item 1A entitled “RISK FACTORS” disclosed in our Annual Report on Form 10-K for the fiscal year ended January 28, 2012.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None.
Item 3. | Defaults Upon Senior Securities |
None.
Item 4. | Mine Safety Disclosures |
None.
Item 5. | Other Information |
None.
Item 6. | Exhibits |
See the Index to Exhibits immediately following the signature page hereto, which Index to Exhibits is incorporated herein by reference.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
TOYS “R” US PROPERTY COMPANY I, LLC | ||
(Registrant) | ||
Date: December 11, 2012 | /s/ F. Clay Creasey, Jr. | |
F. Clay Creasey, Jr. | ||
Executive Vice President and Chief Financial Officer | ||
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INDEX TO EXHIBITS
The following is a list of all exhibits filed or furnished as part of this report:
Exhibit No. | Description | |
3.1 | Amended and Restated Certificate of Formation of TRU 2005 RE Holding Co., I, LLC, changing its name from TRU 2005 RE Holding Co. I, LLC to Toys “R” Us Property Company I, LLC (filed as Exhibit 3.1 to Registrant’s Form S-4 registration statement, filed on December 24, 2009 and incorporated herein by reference). | |
3.2 | Second Amended and Restated Limited Liability Company Agreement of Toys “R” Us Property Company I, LLC (filed as Exhibit 3.2 to the Registrant’s Form S-4 registration statement, filed on December 24, 2009 and incorporated herein by reference). | |
31.1 | Certification of Principal Executive Officer and Principal 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 Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
99.1 | Toys “R” Us – Delaware, Inc. financial statements for the thirteen and thirty-nine weeks ended October 27, 2012 (filed as Exhibit 99.1 to the Form 8-K filed by Toys “R” Us, Inc. on December 11, 2012 and incorporated herein by reference). | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Labels Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
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