Net cash inflows from financing activities were $191 million in 2001, primarily as a result of net borrowings of $216 million during the year. In July 2001, we issued and sold $750 million of notes, comprised of $500 million of notes bearing interest at 7.625% per annum, maturing in 2011, and $250 million of notes bearing interest at 6.875% per annum, maturing in 2006. The proceeds from these notes were used to reduce outstanding commercial paper obligations. Simultaneously with the sale of the notes, we entered into interest rate swap agreements. As a result of the interest rate swap agreements, interest on the $500 million notes accrues at an effective rate of LIBOR plus 1.5120% and interest on the $250 million notes accrues at an effective rate of LIBOR plus 1.1515%. In October 2002, we terminated a portion of the interest rate swap agreeements and received a payment of $27 million, which is being amortized over the remaining lives of the related notes. Concurrently, we entered into new interest rate swap agreements. Of the $500 million notes, $200 million accrues interest at an effective rate of LIBOR plus 3.06%, and $125 million of the $250 million notes accrues interest at an effective rate of LIBOR plus 3.54%. Interest is payable on both notes semi-annually on February 1 and August 1 of each year. In February 2001, we borrowed 500 million EURO through the public issuance of a EURO bond bearing interest at 6.375% per annum. The obligation was swapped into a $466 million fixed rate obligation with an effective rate of 7.43% per annum with interest payments due annually and principal due February 13, 2004.

Net cash outflows from financing activities were $2 million for 2000. Net borrowings for 2000 were $521 million and were used primarily to repurchase 42 million shares of our common stock, to fund increased inventory levels, and to fund our Toysrus.com internet subsidiary. In 2000, we received a total of $97 million from SOFTBANK Venture Capital and affiliates representing their 20% minority interest investment in Toysrus.com.

On March 24, 2003, we filed a "shelf" registration statement with the Securities and Exchange Commission giving us the capability to sell up to $800 million of debt securities that would be used to repay outstanding debt and for general corporate purposes. In April 2003, we sold and issued $400 million in notes bearing interest at a coupon rate of 7.875%, maturing on April 15, 2013. The notes were sold at a price of 98.305%, resulting in an effective yield of 8.125%. Simultaneously with the sale of the notes, we entered into interest rate swap agreements. As a result of these swap agreements, interest will accrue at the effective rate of LIBOR plus 3.622%. Interest is payable semi-annually commencing on October 15, 2003. We plan to use the proceeds from these notes for the repayment of indebtedness maturing in the 2004 calendar year, and pending such repayment, for working capital needs and other general corporate purposes.

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 Bernardino), against us and our 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 under federal privacy and computer fraud statutes, as well as under state statutory and common law, on behalf of all persons who have visited one or more of our 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) as a defendant. Coremetrics is an internet marketing company with whom we have an agreement. These suits seek damages in unspecified amounts and other relief under state and federal law.

With Coremetrics, we filed a joint application with the Multidistrict litigation panel which resulted in all of the federal actions being consolidated and transferred to the United States District Court for the Northern District of California. Plaintiffs voluntarily dismissed the action in the Superior Court of the State of California, County of San Bernardino without prejudice. On October 16, 2001, plaintiffs filed an amended complaint in the United States District Court for the Northern District of California. We believe that we have substantial defenses to all of these claims. On November 13, 2002, we entered into a settlement agreement with plaintiffs in connection with all causes of action. This settlement agreement is subject to the court's review and approval and will not have a material impact on our consolidated financial statements.

We are party to certain other litigation, which, in our judgment, based in part on the opinion of legal counsel, will not have a material adverse effect on our consolidated financial statements.

In August 2000, Toysrus.com entered into a 10-year strategic alliance with Amazon.com to operate a co-branded toy and video game on-line store, which was launched in the third quarter of 2000. In addition, a co-branded baby products on-line store was launched in May 2001 and a co-branded creative and learning products on-line store was launched in July 2001. Under this alliance, Toysrus.com and Amazon.com are responsible for specific aspects of the on-line stores. Toysrus.com is responsible for merchandising, marketing and content for the co-branded store. Toysrus.com also identifies, buys, owns and manages the inventory. Amazon.com handles web-site development, order fulfillment, guest service, and the housing of Toysrus.com's inventory in Amazon.com's U.S. distribution centers. Also in August 2000, Amazon.com was granted a warrant entitling it to acquire up to 5% (subject to dilution under certain circumstances) of the capital of Toysrus.com at the then market value. This warrant has not been exercised.

We recorded a non-operating gain of $315 million ($200 million net of taxes) resulting from the initial public offering of shares of Toys - Japan, which was completed in April 2000. Of this gain, $91 million resulted from an adjustment to the basis of our investment in Toys - Japan, and $224 million was related to the sale of a portion of company-owned common stock of Toys - Japan, for which we received net cash proceeds of $267 million. In connection with this transaction, we