STOCKHOLDERS’ EQUITY

The common shares of the company, par value $0.10 per share, were as follows:

EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share:

Options to purchase approximately 10.3, 3.0 and 38.7 shares of common stock were outstanding during 2001, 2000 and 1999, respectively, but were not included in the computation of diluted earnings per share because the option exercise prices were greater than the average market price of the common shares.

STOCK PURCHASE WARRANTS

The company issued 1.2 stock purchase warrants to SOFTBANK Venture Capital and affiliates (“SOFTBANK”) for $8.33 per warrant. Each warrant gives the holder thereof the right to purchase one share of Toys“R”Us common stock at an exercise price of $13 per share, until the expiration date of February 24, 2010. As of February 2, 2002, these warrants have not been exercised. In addition, the company granted a warrant on August 9, 2000 entitling Amazon.com to acquire up to 5% (subject to dilution under certain circumstances) of the capital of Toysrus.com at the then market value. As of February 2, 2002, this warrant has not been exercised.

INVESTMENT IN TOYS - JAPAN

The company accounts for its investment in the common stock of Toys - Japan under the “equity method” of accounting since the initial public offering on April 24, 2000. The quoted market value of the company’s investment in Toys - Japan was $283 at February 2, 2002. The valuation represents a mathematical calculation based on the closing quotation published by the Tokyo over-the-counter market and is not necessarily indicative of the amount that could be realized upon sale.

TAXES ON INCOME

The provisions for income taxes consist of the following:

At February 2, 2002 and February 3, 2001, the company had gross deferred tax assets, before valuation allowances, of $576 and $486, respectively, and gross deferred tax liabilities of $484 and $461, respectively. Deferred tax assets of $45 were included in “Prepaid expenses and other current assets” at February 2, 2002 and February 3, 2001. Deferred tax assets, net of valuation allowances of $244 and $175 were included in “Other assets” at February 2, 2002 and February 3, 2001. Deferred tax liabilities of $36 and $59 were included in “Accrued expenses and other current liabilities” at February 2, 2002 and February 3, 2001. The tax effects of temporary differences and carryforwards that give rise to significant portions of deferred tax assets and liabilities consist of the following:

On February 2, 2002, the company had $772 of foreign loss carryforwards of which $224 must be utilized within the next seven years and $548 over an indefinite period.

A reconciliation of the federal statutory tax rate with the effective tax rate follows: