Accounting & Tax

Earnings ‘R’ Restated under SAB 108

After applying the new SEC accounting rule on cumulative errors, Toys 'R' Us revises earnings upward.
Stephen TaubMay 16, 2007

Toys ‘R’ Us finally filed its annual report on Wednesday and disclosed that it has restated its fiscal 2006 earnings upward to correct certain tax accounting issues.

The privately held children’s retailer revised net income for the fourth quarter of fiscal year ended February 3 to $224 million, from $199 million, and for the full year to $109 million, from $85 million.

Toys ‘R’ Us made the changes after applying the Staff Accounting Bulletin No. 108. Issued by the SEC last September, SAB 108 explains how to correct errors that have built up on the books over time.

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Chief financial officer Clay Creasey told the Associated Press that under the new rule, some tax expenses originally recorded in fiscal 2006 turned out to be more appropriately recorded in prior years and are being shifted forward. “That’s why the current-year net income is going up,” he told the wire service.

The company also increased its deficit balance by $24 million. In addition, Toys ‘R’ Us reduced total assets by about $500 million, from $8.4 billion, as of January 28, 2006, to correct its accounting for deferred tax assets and liabilities, and took a commensurate reduction in total liabilities.

The changes have “no impact on the financial valuation of the company or its earnings power,” Creasey told the AP.

On April 26, Toys ‘R’ Us had reported its results for the fourth quarter of fiscal 2006 and the full year. But little more than a week later, it warned that it would delay the filing of its annual report because of a material weakness in its internal controls over income tax accounting.

The retailer, which has been a private company since a group of buyout firms acquired it in 2005, is still required to file with the SEC because some of its bonds are publicly held.

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