Vornado Announces its Share of Toys “R” Us Fourth Quarter Net Income and Offsetting Impairment Loss
PARAMUS, N.J.--(BUSINESS WIRE)-- In the quarter ended December 31, 2012, Vornado Realty Trust (NYSE:VNO) recorded a $40,000,000 non-cash impairment loss with regards to its investment in Toys “R” Us and disclosed, that if current facts don’t change, its share of Toys’ undistributed income, which in accordance with the equity method of accounting, would increase the carrying amount of its investment above fair value, would require an offsetting impairment loss.
Vornado announced today that in its first quarter ended March 31, 2013 it has recognized its 32.5% share of Toys’ fourth quarter net income of $78,542,000 and a corresponding non-cash impairment loss of the same amount. Vornado’s income applicable to Toys after the impairment loss in the quarter ended March 31, 2013 is $1,759,000, or $0.01 per diluted share, representing management fees earned which are not subject to impairment. Vornado’s income applicable to Toys in the quarter ended March 31, 2012 was $116,471,000, or $0.57 per diluted share.
Vornado’s share of Toys’ Funds From Operations (“FFO”) after the impairment loss is $16,685,000 (which represents depreciation), or $0.08 per diluted share, compared to $132,288,000, or $0.65 per diluted share in the quarter ended March 31, 2012. Vornado’s share of Toys FFO will be treated as non-comparable for both this year and last year.
The business of Toys is highly seasonal; historically, Toys’ fourth quarter net income accounts for more than 80% of its fiscal year net income.
Attached is a summary of Toys’ financial results and Vornado’s 32.5% share of its equity in Toys’ net income, as well as reconciliations of net income to earnings before interest, taxes, depreciation and amortization (“EBITDA”) and FFO.
Vornado Realty Trust is a fully-integrated equity real estate investment trust.
Certain statements contained herein may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, risks associated with the timing of and costs associated with property improvements, financing commitments and general competitive factors.
| Toys "R" Us, Inc. | ||||||||||||||||
| Condensed Consolidated Statements of Operations – Unaudited | ||||||||||||||||
| For the Quarter Ended | ||||||||||||||||
| February 2, 2013 | January 28, 2012 | |||||||||||||||
| (Amounts in thousands) | Results on a Historical Basis |
Results on Vornado’s Purchase Price Accounting Basis |
Results on Vornado’s Purchase Price Accounting Basis |
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| Net sales | $ | 5,770,000 | $ | 5,770,000 | $ | 5,925,000 | ||||||||||
| Cost of sales | 3,801,000 | 3,801,000 | 3,944,000 | |||||||||||||
| Gross margin | 1,969,000 | 1,969,000 | 1,981,000 | |||||||||||||
| Selling, general and administrative expenses | 1,294,000 | 1,302,200 | 1,289,600 | |||||||||||||
| Depreciation and amortization | 110,000 | 116,600 | 106,200 | |||||||||||||
| Other (income) expense, net | (13,000 | ) | (3,100 | ) | 9,000 | |||||||||||
| Total operating expenses | 1,391,000 | 1,415,700 | 1,404,800 | |||||||||||||
| Operating earnings | 578,000 | 553,300 | 576,200 | |||||||||||||
| Interest expense | (130,000 | ) | (132,500 | ) | (96,600 | ) | ||||||||||
| Interest income | 4,000 | 4,000 | 4,000 | |||||||||||||
| Earnings before income taxes | 452,000 | 424,800 | 483,600 | |||||||||||||
| Income tax expense | (212,000 | ) | (182,800 | ) | (132,200 | ) | ||||||||||
| Net earnings | 240,000 | 242,000 | 351,400 | |||||||||||||
| Less: Net earnings attributable to noncontrolling interest | (1,000 | ) | (1,000 | ) | (2,000 | ) | ||||||||||
| Net earnings attributable to Toys “R” Us, Inc. | $ | 239,000 | $ | 241,000 | $ | 349,400 | ||||||||||
| Vornado’s 32.5% equity in Toys’ net earnings | $ | 78,542 | $ | 114,184 | ||||||||||||
| Impairment loss | (78,542 | ) | - | |||||||||||||
| Management fee from Toys, net | 1,759 | 2,287 | ||||||||||||||
| Total Vornado net income from its investment in Toys | $ | 1,759 | $ | 116,471 | ||||||||||||
| See page 3 for a reconciliation of net income to FFO. | ||||||||||||||||
| Reconciliation of Vornado’s net income from its | ||||||||||||||||
| investment in Toys to EBITDA ((1)): | ||||||||||||||||
| Net income | $ | 1,759 | $ | 116,471 | ||||||||||||
| Interest and debt expense | 43,182 | 31,569 | ||||||||||||||
| Depreciation and amortization | 37,674 | 34,706 | ||||||||||||||
| Income tax expense | 59,346 | 43,203 | ||||||||||||||
| Vornado’s share of Toys’ EBITDA (1) | $ | 141,961 | $ | 225,949 | ||||||||||||
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(1) |
EBITDA represents “Earnings Before Interest, Taxes, Depreciation and Amortization.” Management considers EBITDA a supplemental measure for making decisions and assessing the unlevered performance of its segments as it relates to the total return on assets as opposed to the levered return on equity. EBITDA should not be considered a substitute for net income. EBITDA may not be comparable to similarly titled measures employed by other companies. |
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| Toys "R" Us, Inc. | |||||||||||
| Funds From Operations - Unaudited | |||||||||||
| (Amounts in thousands) | For the Quarter Ended | ||||||||||
| February 2, 2013 | January 28, 2012 | ||||||||||
| Reconciliation of Vornado's net income from its | |||||||||||
| investment in Toys to FFO ((1)): | |||||||||||
| Net income | $ | 1,759 | $ | 116,471 | |||||||
| Depreciation and amortization of real property | 19,326 | 17,288 | |||||||||
| Real estate impairment losses | 3,650 | 7,026 | |||||||||
| Income tax effect of above adjustments | (8,050 | ) | (8,497 | ) | |||||||
| Vornado's share of Toys’ FFO (1) | $ | 16,685 | $ | 132,288 | |||||||
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(1) |
FFO is computed in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT defines FFO as GAAP net income or loss adjusted to exclude net gains from sales of depreciated real estate assets, real estate impairment losses, depreciation and amortization expense from real estate assets, extraordinary items and other specified non-cash items, including the pro rata share of such adjustments of unconsolidated subsidiaries. FFO and FFO per diluted share are used by management, investors and analysts to facilitate meaningful comparisons of operating performance between periods and among our peers because it excludes the effect of real estate depreciation and amortization and net gains on sales, which are based on historical costs and implicitly assume that the value of real estate diminishes predictably over time, rather than fluctuating based on existing market conditions. FFO does not represent cash generated from operating activities and is not necessarily indicative of cash available to fund cash requirements and should not be considered as an alternative to net income as a performance measure or cash flows as a liquidity measure. FFO may not be comparable to similarly titled measures employed by other companies. |
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Vornado Realty Trust
Joseph Macnow, 201-587-1000
Source: Vornado Realty Trust