The Toys"R"Us International division achieved net sales of more than $2 billion, and operating earnings of $160 million, up from 2001's record $131 million. Operating earnings were up 10% excluding the impact of currency fluctuations. International's 6% comparable store sales increase was the strongest in the company.

The strong performance of the International business speaks to the vitality of the "R"Us brands on a global basis. Toys"R"Us International now operates, licenses or franchises toy stores in 29 countries outside the United States. As of February 1, 2003, the International division was comprised of 544 stores: 289 wholly-owned stores, and 255 licensed and franchised stores. International added 45 new toy stores in 2002, including licensed and franchised stores, and closed 8 stores.

Our International business builds on the global strength of our brands and then adds a local flavor tailored to each country. The International stores feature many of the elements that have helped to differentiate our U.S. toy stores - Universe of Imagination (learning and educational products), Animal Alley (plush), Teentronics (electronic entertainment products) and Babies"R"Us (newborn and infant products). In addition, the R-Zone area of the store has been expanded in several major International markets to include multi-media and family-friendly computers along with the core video game systems. We have also enjoyed considerable success with our proprietary product offerings in the International arena and the proportion of exclusive product sales continues to grow.

The International division often leads the company in important ways. Our U.K. division has been a pioneer in the promotion of value multi-packs, as well as the development of sales and customer service training for store associates. In addition, our Iberian team is a leader in the development of operating controls, contributing to the best return on sales across the division. Toys"R"Us Japan, which is 48% owned by Toys"R"Us, Inc., often serves as a beacon to identify hot new product trends, such as karaoke, Beyblades™ and Yu-Gi-Oh!™ The International team continues to leverage best practices and creative ideas to drive growth around the world.

This promises to be another exciting year for the International division. We intend to add approximately 30 new toy stores in 2003, including approximately 25 licensed or franchised stores. We will build on the success of our first stand-alone Babies"R"Us store in Japan by opening additional stand-alone stores. And, again, we will work hard to drive sales, control expenses and aim for another year of record sales and earnings.