Toys 'R' US case

1.      The Toys ‘R’ US spent $294 million for its restructuring plan.  The $294 million of restructuring charge will be reported under the heading restructuring and other charges in income statement in the year 2009. Charges are reported on the following heading on income statement in year 2008:

·        Selling and general expenses $39 million.

·        Restructuring Charges $184 million

·        Reserve of $149 million.

2.                                                                  Year 2009                   Year 2008

Net sales                                        $11,170                       $11038

Cost of goods sold                                    $8,191                         $7,710

Gross Profit                                   $2979                          $3,328

Selling, advertising, general exp.  $2,443                         $2231

Depreciation                                  $255                            $253

Restructuring charges                   -                                   -

Total operating expenses               $2698                          2484

Operating income                          $281                            $844

Interest expenses                           $102                            $85

Interest income                             ($9)                              ($13)

Interest expense net                      $93                              $72

Earnings before tax                       $188                            $772

Income tax                                                $66                                                          $270           

Net earnings                                  $122                            $502

With the restructuring charges company’s net earnings in the year 2009 was in negative while without the restructuring charges company’s net earnings are positive. At the same time, Company had tax liabilities of $66 million without restructuring charges while company saves $26 million of tax as losses on earnings.

3.      Followings are the major elements of restructuring strategy:

·        The closing or downsizing stores in international market which do not meet the company’s financial objectives will free out management to focus on higher return opportunities.

·        Combining U.S. toys into “combo” stores enable company to reduce operating costs and releasing working capital. This ultimately enhances the productivity by further expanding Kids’ apparel. 

·        Consolidation of several distribution centers and over half a dozen administrative offices enables company to reduce administrative support functions and expenses in the U.S and Europe.