In 1998, the company also recorded markdowns and other charges of $345, which included $253 for markdowns required to clear excess inventory from stores, $29 for markdowns related to the store closings and $63 for charges to cost of sales for inventory system refinements and changes in accounting estimates.

In 1995, the company announced certain initiatives to restructure its world-wide business. In the fourth quarter of 2001, the company determined that unused reserves of $13 for the restructuring of its international business would no longer be needed and accordingly, reversed these reserves. The company has substantially completed the remainder of this program, with the exception of long-term lease commitment reserves that will be utilized throughout 2002 and thereafter.

The company believes that unused reserves existing at February 2, 2002 are reasonable estimates of what is required to complete all remaining initiatives.

GAIN FROM INITIAL PUBLIC OFFERING OF TOYS-JAPAN

The company recorded a pre-tax non-operating gain of $315 ($200 net of taxes) in the first quarter of fiscal 2000 resulting from the initial public offering of shares of Toys - Japan. Of this gain, $91 resulted from an adjustment to the basis of the company’s investment in Toys - Japan and $224 related to the sale of a portion of company-owned common stock of Toys - Japan. In connection with this transaction the company also received net cash proceeds of $267 and recorded a provision for current income taxes of $82 and a provision for deferred income taxes of $33, respectively. As a result of this transaction, the company’s ownership percentage in the common stock of Toys - Japan was reduced from 80% to 48%. Toys - Japan is a licensee of the company.

SUBSEQUENT EVENTS

On March 19, 2002, the company refinanced its note payable originally repayable through fiscal 2005 and increased the amount outstanding to $160 from $100. This borrowing is repayable in semi-annual installments, with the final installment due on February 20, 2008. The effective cost of this borrowing is 2.23% and is secured by expected future cash flows from license fees due from Toys-Japan.

On March 13, 2002, the company filed registration statements with the Securities and Exchange Commission indicating the company’s intention to issue $550 of Toys“R”Us equity and equity-linked securities. These securities take the form of $350 of equity security units and $200 of Toys“R”Us common stock. The company plans to issue these securities promptly after the registration statements are declared effective. The net proceeds from these offerings will be utilized as an alternative to short-term borrowings and other general corporate purposes.

OTHER MATTERS

In August 2000, eleven purported class action lawsuits were filed (six in the United States District Court for the District of New Jersey, three in the United States District Court for the Northern District of California, one in the United States District Court for the Western District of Texas and one in the Superior Court of the State of California, County of San Bernadino), against the company and its affiliates Toysrus.com, Inc. and Toysrus.com, LLC. In September 2000, three additional purported class action lawsuits were filed (two in the United States District Court for the District of New Jersey and one in the United States District Court for the Western District of Texas). These actions generally purport to bring claims on behalf of all persons who have visited one or more of the company’s web sites and either made an online purchase or allegedly had information about them unlawfully “intercepted,” “monitored,” “transmitted,” or “used.” All the suits (except one filed in the United States District Court for the District of New Jersey) also named Coremetrics, Inc. (“Coremetrics”), an internet marketing company, as a defendant.

These lawsuits assert various claims under the federal privacy and computer fraud statutes, as well as under state statutory and common law, arising out of an agreement between the company and Coremetrics, alleging that the company tracks its web site users’ activities online and shares that information with third parties in violation of the law. These suits seek damages in unspecified amounts and other relief under state and federal law.

The company and Coremetrics filed a joint application with the Multidistrict litigation panel to have all of the federal actions consolidated and transferred to the United States District Court for the Northern District of California. A hearing on that application was held on November 17, 2000, and all matters have now been consolidated in the United States District Court for the Northern District of California.

The company moved for a stay of the action in the Superior Court of the State of California, County of San Bernadino pending resolution of the actions filed in federal court. The court granted the company’s motion for stay on May 22, 2001. Plaintiffs subsequently voluntarily dismissed the action without prejudice.

The company filed a motion to dismiss plaintiffs’ federal causes of action on August 3, 2001. On October 9, 2001, the United States District Court, Northern California District, granted in part and denied in part the company’s motion to dismiss. The court’s order dismissed one cause of action without leave to amend, dismissed a second cause of action with leave to amend and denied the company’s motion as to the third cause of action. On October 16, 2001, plaintiffs filed an amended complaint to remedy the defects in the cause of action previously dismissed with leave to amend.

The company believes that it has substantial defenses to these claims and plans to vigorously defend these lawsuits.

The company is party to certain other litigation which, in management’s judgement, based in part on the opinion of legal counsel, will not have a material adverse effect on the company’s financial position.