We worked diligently in 2002 to improve our productivity, reduce expenses and enhance our financial strength.

We took steps to strengthen our balance sheet and improve our liquidity. As a result, we had substantial excess liquidity in early November during our seasonal borrowing peak, and ended the fiscal year with more than $1 billion in cash.

We reduced capital spending significantly in 2002. Net capital expenditures were $398 million in 2002 as compared to $705 million in 2001.

We made solid progress on our commitment to reduce selling, general and administrative (SG&A) expenses by 200 basis points by 2005. We were able to achieve a reduction of 70 basis points in 2002, so we're approximately a third of the way to achieving our four-year objectives in the first year.

We will also continue to find ways to strengthen and expand our portfolio, and, in fact, made progress in the development of new businesses for the future in 2002. Our test of Toys"R"Us ToyBox, our store concept within grocery stores which first opened in the summer of 2001, is generating positive results. By the end of the year, we expanded our initial test to more than 30 stores, and we are currently evaluating further expansion opportunities for 2003.

We also launched Geoffrey, which is a combination Toys"R"Us, Kids"R"Us and Babies"R"Us store, in four smaller markets in 2002. The customer response has been positive, and we've already derived some key learnings from Geoffrey that may be applicable to our other divisions. We plan to move forward carefully with this concept, but we are encouraged by the results we've seen.

We are committed to doing all it takes to turn the U.S. toy stores around and to expand further on the successes that we've seen. This progress clearly indicates that we are on the right track with our strategies. Our challenge and our commitment is to build on what we've accomplished. We will accelerate execution of our merchandising, presentation, customer service, pricing and advertising efforts designed to drive traffic and increase profitable sales. Knowing that we also need the support of our vendor community to succeed, we continue to work in partnership with them to build excitement for their brands and to re-energize underperforming product categories.