Amazon to pay Toys R Us $51M

June 12, 2009 5:50:06 PM PDT
Amazon.com Inc. will pay $51 million to Toys R Us Inc. to end a long-standing legal dispute between the online retailer and the toy seller. In a filing Friday with the Securities and Exchange Commission, Amazon said it agreed Thursday to settle the dispute, which began in 2004.

Amazon will make the payment, "substantially all of which was unanticipated," in the third quarter, which begins July 1. But the company said it will be charged to operating expenses in the second quarter.

The lawsuit was over a partnership that gave Toys R Us exclusive rights to supply some toy products on Amazon's site. Wayne, N.J.-based Toys R Us claimed Amazon violated the partnership by letting others sell some toys on Amazon.com, while Seattle-based Amazon said the toy seller failed to keep items in stock.

The companies originally joined up in 2000 after the toy seller's Web site, Toysrus.com, suffered a brutal 1999 holiday season in which some customers' toys were not delivered until after Christmas. That partnership was supposed to last through 2010.

The settlement comes two months after a New Jersey appeals court ruled against Amazon, agreeing with a lower court's 2006 ruling that Amazon breached the deal. That allowed a lower court to consider awarding damages to Toys R Us, which had not disclosed how much it was seeking in damages. The settlement will take the place of a court award.

In 2006, the lower court judge had allowed the companies to end their online partnership early, but declined to award either party damages. Toys R Us had asked the trial court for damages of about $93 million, including interest, according to a separate Amazon filing.

In an SEC filing of its own, Toys R Us said the settlement calls for payment within 45 days of the date of the agreement, which would mean the payment is due by late July.

A Toys R Us spokeswoman declined further comment.

An Amazon spokeswoman declined to say how much the settlement payment will hurt its second-quarter earnings.

In a client note, JPMorgan analyst Imran Khan said it will lower Amazon's profit by about 8 cents per share, and he cut his second-quarter earnings estimate from 28 cents per share to 20 cents per share.

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Associated Press Business Writer Eileen AJ Connelly contributed to this story.

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