In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 142, "Goodwill and Other Intangible Assets" (SFAS No. 142), which is effective for fiscal years beginning after December 15, 2001. SFAS No. 142 changes the accounting for goodwill from an amortization method to an impairment only approach. The company adopted this pronouncement on February 3, 2002. As a result of this adoption, amortization of $348 of goodwill, which was to be amortized ratably through 2037, ceased. The carrying amount of goodwill at February 1, 2003 relates to the acquisition of Baby Super Stores, Inc. in 1997 ($319), which is now part of the Babies"R"Us division, and the acquisition of Imaginarium Toy Centers, Inc. in 1999 ($29), which is part of the Toys"R"Us - U.S. division. Based on the estimated fair market values (calculated using historical operating results of the reporting units to which the goodwill relates and relative industry multiples) of these divisions compared with the related book values, the company has determined that no impairment of this goodwill exists. Application of the non-amortization provisions of SFAS No. 142 resulted in an increase in net earnings of $8 for 2002. Had the non-amortization provisions of SFAS No. 142 been applied for 2001 and 2000, the company would have reported net earnings of $75 and $412, respectively, and diluted earnings per share of $0.36 and $1.92, respectively.

The company is accounting for its 48% ownership investment in the common stock of Toys - Japan on the "equity method" of accounting since the initial public offering in April 2000. Toys - Japan operates as a licensee of the company. As part of the initial public offering, Toys - Japan issued 1.3 shares of common stock to the public at a price of 12,000 yen or $113.95 per share. In November 2001, the common stock of Toys - Japan split 3 for 1. The company's accounting policy for the sales of subsidiaries' stock is to recognize gains or losses for value received in excess of or less than its basis in such subsidiary. No similar issuances of subsidiaries' stock are contemplated at this time. The carrying value of the investment is reflected on the consolidated balance sheets as part of "Other Assets" and was $140 and $123 at February 1, 2003 and February 2, 2002, respectively. At February 1, 2003, the quoted market value of the company's

investment was $188, which exceeds the carrying value of the investment. 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. The company is a guarantor of 80% of a 10 billion yen ($84) loan from third parties in Japan with an annual rate of 6.47%, due in 2012, for which Toys - Japan is the borrower.

On May 28, 2002, the company completed public offerings of Toys"R"Us common stock and equity security units, as described in the note entitled "ISSUANCE OF COMMON STOCK AND EQUITY SECURITY UNITS."

In February 2001, the company issued and sold 500 EURO through the public issuance of a EURO bond bearing interest at 6.375% per annum. Through the use of derivative instruments, this obligation was swapped into a $466 fixed rate obligation at an effective rate of 7.43% per annum with interest payments due annually and principal due on February 13, 2004.

In July 2001, the company issued and sold $750 of notes comprised of $500 of notes bearing interest at 7.625% per annum, maturing in August 2011, and $250 of notes bearing interest at 6.875% per annum, maturing in August 2006. Simultaneously with the issuance of these notes, the company entered into interest rate swap