We will also continue to improve our cost effectiveness to reduce our SG&A even further in 2003. In March, we reduced our national headquarters staff by approximately 200 positions, or 10%. We also announced that we would combine our Kids"R"Us and Babies"R"Us management teams into one group. This will help Kids"R"Us reduce its operating costs. In addition, we will ensure that our balance sheet remains strong and that we have ample liquidity now and into the future.

I think it truly says something about the strength of our portfolio that even in a year where we did not see the kind of success we expected in the largest division of our company, we were still able to announce a meaningful earnings increase. As we look to the future, I'm very proud of the steps that we've taken to manage the business in an undeniably difficult operating environment.

As I write this letter, our associates from all divisions and all disciplines are working with tremendous commitment to make ours a more profitable organization. They share my absolute conviction that in 2003 we will seize upon every opportunity to drive sales and profits across every division. Given the solid improvement in our earnings in 2002, despite very difficult and uncertain economic and world environments, we believe we have ample evidence that we're on the right track. We will build on that progress, and we will not stop until we can deliver a better value for your investment and repay your faith in our company.







John H. Eyler, Jr.
Chairman, President and Chief Executive Officer
March 29, 2003