A great deal of work during the last three years has gone into strengthening and improving our toy stores in the United States. Improving content and store layout, developing new and exciting merchandise, building the brands of our valued vendors, and launching one of the most popular advertising campaigns in 2002 all led to real progress.

We were not satisfied with the comparable store sales performance of our U.S. toy stores in 2002. Our seasonal, video and juvenile businesses experienced negative comparable store sales, which depressed our overall results. However our core toy sales, which include Boys and Girls, Learning and Preschool toys, outpaced toy industry performance by 4% for the year, as reported by the Toy Industry Association. This is consistent with reports provided by the majority of our core toy vendors that we gained market share in 2002.

We saw evidence in 2002 that our strategies are working. The U.S. toy stores are delivering an appreciably better shopping experience to our customers. We know this from the increases we have seen in both average transaction size and consumer satisfaction research scores. Specifically, this year we received higher marks from our customers for our service, in-stock position, knowledgeable associates, and competitive pricing. During the 2002 holiday shopping season, we launched our new "Low Price Super Stars" campaign including an advertising message that clearly resonated with our customers. We also had our best in-stock position in more than a decade; we were 97% in stock on our top 1,500 items for much of the holiday selling season. And we did our utmost to stay ahead of the curve, setting our store assortment presentations for the holiday selling season six weeks ahead of schedule, which helped to insulate us from the impact of the west coast dock strike.

The completion of our Mission Possible renovations in October 2002 enabled us to speak about the new Toys"R"Us through our advertising for the first time. Geoffrey the Giraffe, our charismatic "spokesanimal", quickly won the hearts of parents and children alike through a series of television commercials that aired last fall. Three of our commercials ranked among the top four for the year, according to Intermedia Advertising Group. Our TV spot, "Phone Call," which showed Geoffrey touting our in-stock position, ranked #1 among 4,000 commercials for the highest brand recall of the year. We were very proud that our Geoffrey advertising campaign was recognized by Advertising Age and The Wall Street Journal, among other respected sources, as the most successful television campaign of 2002 for all product categories based on consumer brand recall. We plan to build on the success of this advertising campaign in 2003 and expand it beyond the holiday selling season.