EXHIBIT 13

                         Tomorrow
                       Begins With Us

                                                                          [LOGO]
                                                                  Toys "R" Us(R)
                                                              Annual Report 1998


<PAGE>

                                [PHOTO OMITTED]

Toys"R"Us
The Worldwide
Authority on
Kids, Families
and Fun

Table of Contents

Financial Highlights ..................................................   page 3

Letter to Our Stockholders ............................................   page 4

Management's Discussion and Analysis
of Results of Operations and Financial Condition ......................   page 9

Financial Statements ..................................................  page 13

Report of Management and
Report of Independent Auditors ........................................  page 23

Directors and Officers ................................................  page 24

Quarterly Financial Data,          
Market Information and Store Locations ................................  page 26

Corporate Data and Citizenship ........................................  page 27


2

<PAGE>

Financial Highlights
Toys"R"Us, Inc. and subsidiaries

<TABLE>
<CAPTION>

(Dollars in millions except per share data)                                                                 Fiscal Year Ended
=============================================================================================================================
                       Jan. 30,   Jan. 31,   Feb.1,   Feb. 3,   Jan. 28,   Jan. 29,   Jan. 30,   Feb. 1,   Feb. 2,   Jan. 28,
                         1999*      1998     1997*     1996*      1995       1994       1993       1992      1991      1990
-----------------------------------------------------------------------------------------------------------------------------
<S>                     <C>        <C>      <C>       <C>        <C>        <C>        <C>       <C>      <C>         <C>    
OPERATIONS:
 
 Net Sales             $11,170    $11,038  $ 9,932   $ 9,427    $ 8,746    $ 7,946    $ 7,169   $ 6,124  $ 5,510     $ 4,788
  Net (Loss)/Earnings      (132)       490      427       148        532        483        438       340      326         321
  Basic (Loss)/Earnings
  Per Share               (0.50)      1.72     1.56      0.54       1.88     1.66         1.51      1.18     1.12        1.11
  Diluted (Loss)/Earnings
  Per Share               (0.50)      1.70     1.54      0.53       1.85     1.63         1.47      1.15     1.11        1.09

FINANCIAL POSITION AT YEAR END:

  Working Capital       $   106    $   579  $   619   $   326    $   484     $  633    $   797   $   328  $   177     $   238
  Real Estate-Net         2,354      2,435    2,411     2,336      2,271      2,036      1,877     1,751    1,433       1,142
  Total Assets            7,899      7,963    8,023     6,738      6,571      6,150      5,323     4,583    3,582       3,075
  Long-Term Debt          1,222        851      909       827        785        724        671       391      195         173
  Stockholders' Equity    3,624      4,428    4,191     3,432      3,429      3,148      2,889     2,426    2,046       1,705

NUMBER OF STORES AT YEAR END:

  Toys"R"Us - 
     United States          704        700      682       653        618        581        540       497      451         404
  Toys"R"Us - 
     International          452        441      396       337        293        234        167       126       97          74
  Kids"R"Us - 
     United States          212        215      212       213        204        217        211       189      164         137
  Babies"R"Us - 
     United States          113         98       82        --         --         --         --        --       --          --
  Total Stores            1,481      1,454    1,372     1,203      1,115      1,032        918       812      712         615 
</TABLE>

* After restructuring and other charges.


                                                                               3
<PAGE>

                                                                 [PHOTO]
                                                           ROBERT C. NAKASONE
                                                         Chief Executive Officer

To Our Stockholders
  
1998 was indeed a year of enormous challenge and change. We've spent the year
intensively reviewing every aspect of our business and making some tough calls
aimed at repositioning our worldwide business. Key elements of our strategic
plan include a Total Solutions Strategy focused on our C-3 plan, which includes
the reformatting and repositioning of our toy stores; development of a customer-
driven culture; expanding product development; improving our customer value
proposition; accelerating our supply chain management program; and expanding our
channels of selling. In conjunction with these restructuring efforts, we have
been proactively rebuilding and reshaping a stronger management team which will
serve to build the foundation for repositioning your Company in the years ahead.
We believe that the sum total of these efforts will serve as the springboard
toward implementing our expanded vision for the future: to position Toys"R"Us as
the worldwide authority on kids, families and fun.

Before outlining our strategic initiatives, let's take a quick look at 1998.

1998 Financial Summary

From a financial standpoint, 1998 was a disappointing year.
Our sales totaled $11.2 billion, which represented a 1.2% increase over the
$11.0 billion reported last year. Comparable store sales in our U.S. toy stores
declined by 4% while our International toy store sales declined by 2%, in local
currency. A key factor behind these sales declines was the much-publicized
weakness in the overall worldwide toy industry which was cycling against very
strong sales of virtual pets, action figures and plush a year ago. In addition,
the lower sales also reflect retail price deflation in the video game hardware
and software category, as well as the deflationary impact of clearance
merchandise sales related to our previously-announced inventory reduction
programs. 

Comparable sales at Kids"R"Us were down 2%. Nonetheless, it is worth noting that
comparable store apparel sales were considerably stronger in our 65 "combo"
stores where we have reallocated roughly 6,000 square feet of Kids"R"Us
apparel into existing Toys"R"Us stores. We believe this underscores the
important role of apparel in all our future "R"Us store configurations.

At Babies"R"Us, we're very pleased to report a record performance for 1998.
Comparable store sales were up almost 20%. We now operate 118 Babies"R"Us stores
nationwide and are the market share leader in the juvenile specialty category.
Needless to say, we are extremely pleased with the performance of this division
and plan to continue our aggressive expansion with approximately 20 new stores
slated for '99.

Largely as a result of these sales trends, our net earnings, before
restructuring and other charges, were $376 million or $1.41 per share. Including
the restructuring and other charges of $698 million, ($508 million net of taxes)
the Company incurred a net loss of $132 million or $0.50 per share for 1998.


4

<PAGE>

1998 Restructuring Benefits

We ended 1998 a much healthier and vibrant company. This was attributable to
some tough strategic decisions that will shape the Company's future. We recorded
restructuring and other charges of $508 million net of taxes, which caused the
Company to incur a net loss in 1998. The impact of making these tough calls will
be evident in our future operations, growth and financial performance. These
charges are the result of an exhaustive review of all our operations in 1998
from both a strategic and an Economic Value Added ("EVA(R)") perspective. These
reviews prompted the following significant actions:

o The closing and/or downsizing of approximately 50 toy stores in the
International arena, predominantly in continental Europe, and about 9 U.S. toy
stores which do not meet the Company's strategic or financial objectives. This
will free our management to focus on higher return opportunities;

o The conversion of 28 existing U.S. toy stores into "combo" stores, which will
enable us to close 31 nearby Kids"R"Us stores. In addition to reducing operating
costs and releasing working capital, this will allow us to enhance our
productivity by further expanding kids' apparel into additional Toys"R"Us
stores;

o The consolidation of several distribution centers and over half a dozen
administrative offices. These actions will reduce administrative support
functions in the U.S. and Europe, which will not only generate selling, general
and administrative efficiencies, but "flatten" our organization and bring our
management even closer to our stores and customers;

o The continuation of taking aggressive markdowns on clearance product to
optimize inventory levels, accommodate new product offerings and accelerate our
store reformatting. In conjunction with the initial stages of our supply chain
re-engineering, we have already been able to reduce same store inventories in
all our divisions by over $560 million or 24% at year end 1998, with roughly
$480 million or 31% of this favorable swing coming from reduced inventory in the
U.S. toy stores division alone. This brought us into the new year with
heightened merchandise flexibility and increased "open to buy" as we begin the
rollout of the initial phase of our store reformat program in 1999.

One of our other key priorities in 1998 was to build a strong executive team,
and we are well on our way towards assembling a truly outstanding management
team. Since the beginning of '98, more than 50 percent of our officer team has
either joined the company from the outside, or has been promoted or transferred
to new assignments, bringing fresh perspectives and proven skills to our
business.

It is obvious our 1998 sales and earnings were not what we wanted them to be.
However, we've spent a year making tough calls and hard decisions, and we're now
ready to move forward stronger and more focused than ever.

Total Solutions Strategy 

Our restructuring program, in September 1998, was the first step required to
launch a winning strategy for Toys"R"Us - a strategy which will realign our
assets, organization and thinking based on customer-driven priorities in a more
competitive marketplace. In the "R"Us brand, we have one of the best-known brand
names in the world: our challenge is to more effectively develop this strong
customer franchise potential. Today's retail marketplace demands stores that are
exciting, easy to shop and customer-friendly. While our selection is still
superior to our competitors, that alone is not compelling enough to rebuild
market share and brand loyalty. We must become more focused on developing
greater everyday customer value in terms of price, service and the total
shopping experience. 

To fulfill these objectives, we are moving into the second phase of our Total
Solutions Strategy in 1999.


                                                                 [PHOTO]
                                                           We are rebuilding our
                                                         "worlds" around theirs.


                                                                               5
<PAGE>

C-3 - More Than Just a Store

Over the next two years, the C-3 plan will include the implementation of new
merchandise as well as customer service, store layout, price/value and supply
chain improvements that provide an integrated approach to maximizing customer
potential.

This has led our new management team to develop an initiative that is a Customer
driven . . .Cost effective . . . Concept delivering sustainable, long-term
performance. C-3 is a total customer solution involving every facet of our
Company from merchandising and replenishment to operations and people
development.

In October 1998, we started our C-3 development operationally in nine stores to
"stress test" a new, more customer-friendly store layout during our high sales
season. We proved that our operations could handle high velocity seasonal
inventory flow despite a 33% smaller backroom, and that we could maintain
acceptable in-stock conditions despite an entirely new operating approach. We
are encouraged by the positive customer reaction to these stores, and are
experiencing positive sales trends, even though a majority of C-3 merchandise
enhancements will not be implemented until mid-1999.

Based on the positive results of this initial operational phase of C-3, we are
even more committed to the 1999 conversion of approximately 200 U.S. stores,
which will include the development of many new merchandising "worlds." We will
also retrofit the front end in an additional 125 stores this year to include the
R Zone (teen electronics), promotional product and easier customer access. The
C-3 Total Solutions Strategy consists of an easier-to-shop store layout, an
expanded merchandise offering, a higher standard of customer service and a more
effective supply chain approach that will enable us to build long-term
performance improvement. Over the next few years we will align our organization,
capital investments and operating approach to fully focus on the following C-3
objectives:

o Store Repositioning 

Our stores must be made easier to shop and present merchandise in a more dynamic
selling environment. The C-3 store layout creates wider aisles, more feature
opportunities and end-caps, shops and logical category adjacencies - all
designed to improve customer shopping patterns and experience. The sales floor
has been expanded by 20% with a one-third reduction in the size of our
backrooms.

o Customer-Driven Culture 

The customer must experience a higher level of service in our stores. To
accomplish this, we are streamlining our organization and operating processes to
allow us to invest more in sales floor staffing, associate product knowledge
training, and improving overall customer-friendly service. We are also
intensifying our in-store informational graphics and product inter-activity to
give our customers access to more substantial product knowledge on a
"self-service" basis.

[PHOTO]
R Zone, the new "hot spot" for
teens, features the newest in 
electronics and videos.


6

<PAGE>


                                                                         [PHOTO]
                                                          Families love shopping
                                                         at our newest location:
                                                                www.toysrus.com.

o Product Development

We must give our customers more reasons to shop our stores. Based on the results
of extensive  customer  research,  we have created  merchandise  "worlds."  Each
"world" has a unique  customer  franchise from juvenile (Mom and her baby), to R
Zone  electronics  and video  products (the "cool" spot for teenage  customers).
Each "world" will  establish  its own business  plan and has a complete  support
team to develop its business from product  sourcing to customer  advertising and
promotion.

The "worlds" presently being developed are:

o R Zone (video, electronics, computer software related products)

o Action and Adventure (action figures, diecast cars, etc.)

o Girls (dolls, collectibles, accessories, lifestyle products)

o Outdoor Fun (bikes, sports, playsets)

o Pre-School (toys, accessories)

o Seasonal (Christmas, Halloween, Summer, etc.)

o Juvenile (baby products and 0-4 apparel)

o Learning Center (educational and developmental products)

o Family Fun (games and puzzles)

1999 will see a majority of the new "world" product  selection and merchandising
included in our C-3 rollout.

In  addition,  emphasis  on  proprietary  product,  private  label,  and branded
exclusives  will  continue to be a significant  part of our product  development
strategy.  Retail sale of proprietary  exclusive and private label merchandising
was up  significantly in 1998, and we are targeting to double this business over
the next three years.

Customer Value Proposition

The  "R"Us  brand  must  take on new  dimensions  of  significant  value  to our
customers.   We  are  evaluating  our  pricing  model  to  assure  an  everyday,
competitive  position on key products.  We are more  aggressively  pursuing high
demand and closeout product  opportunities to bring more special price values to
our customers in 1999. We also see a great  opportunity to further  leverage our
substantial  "R"Us customer database through the creation of a Loyalty Marketing
Program,  which will be piloted in  several  metropolitan  markets in 1999.  The
mandate for our new team in marketing is quite clear:  sharpen our  advertising,
promotion and "R"Us brand-building efforts.

Supply Chain

The first step in improving  our supply chain  management  in 1998 was to unclog
slow turning  inventory from our stores.  Our inventory  reduction  program will
allow us to transform our stores' physical and merchandising  layout.  This will
be  completed  in  1999.   These   actions  will  allow  us  to  create  a  more
customer-driven  product  flow,  improve  turns,  effectively  manage  space for
product  productivity and  operationally  have the right product ...at the right
place ...at the right time.

E-Commerce

We are  extending  our presence  beyond our stores by expanding  our channels of
selling to our  customers.  We will be  wherever  our  customers  are,  and that
includes mediums such as mail-order catalogs and electronic commerce.

1998 marked our entry into the exciting  world of  electronic  commerce with the
introduction of Internet shopping through www.toysrus.com.  Following our launch
on the Internet last June,  traffic to our website has grown  significantly.  We
are  upgrading  our capacity to meet the growing  demand and we are committed to
making this site a dominant force in online retailing. We are presently aligning
our distribution, buying and brand strengths to more broadly impact the Internet
in 1999.

                                                                               7
<PAGE>

[PHOTO]
Everyday, a new
customer is born.

"Worldwide Authority on Kids,
Families and Fun" -
The "R"Us Potential

Most of us grew up as Toys"R"Us kids. We strongly believe that our Company's
success and growth as we proceed into the next millennium will be tied to our
unique ability to delight our valued customers - past, present and future. We
must captivate their imaginations and introduce them to the exciting and fun
world of limitless possibilities that the "R"Us family is committed to
providing: a world where they know they are the most important ingredient in
everything we do. 

These are aggressive goals that require a total commitment to our customers,
dramatic cultural change in our organization and a clear, strategic vision that
effectively mobilizes the substantial resources of our Company. It will take
time. It will not be easy. But we believe in the strength and potential of the
"R"Us customer franchise, and we most importantly believe that the people in the
Toys"R"Us organization worldwide have what it takes to create a strong,
successful future for all of us. 

That future begins now. 

Sincerely, 

/s/Robert C. Nakasone

Robert C. Nakasone 
Chief Executive Officer 
March 29, 1999


8

<PAGE>

Management's Discussion and Analysis
RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Results of Operations*

The Company's total sales increased to $11.2 billion for 1998, a 1.2% increase
from total sales of $11.0 billion last year. Sales increased by 11.1% in 1997
and 5.4% in 1996. In 1998 sales were negatively impacted by the overall weakness
in the worldwide toy industry which was cycling against strong sales of virtual
pets, action figures and plush a year ago. In addition, sales were negatively
impacted by sales of video hardware and software at lower price points as well
as the deflationary effect from sales of clearance merchandise related to the
Company's inventory reduction program. Comparable store sales for the Toys USA
division declined 4% while the Toys International division had a 2% comparable
store sales decline, in local currency. Kids"R"Us reported a 2% comparable store
sales decrease in 1998. The softness in Toys and Kids was offset to some extent
by an almost 20% comparable store sales gain in Babies"R"Us.

The Company's three-year sales growth is primarily attributable to the
acquisition of Baby Superstore and the Company's continued store expansion. The
Company opened 56 new U.S.A. toy stores, 133 international toy stores, including
franchise and joint venture stores, 10 children's clothing stores, 40 baby
specialty stores, and acquired 76 baby specialty stores during the three year
period. The Company closed 23 stores from 1996 through 1998 and terminated a
franchise agreement in Italy for 14 stores. These closures did not have a
significant impact on the Company's financial position.

Cost of sales as a percentage of sales increased to 73.3% in 1998 from 69.8% in
1997. Cost of sales was negatively impacted by clearance markdowns of $253
million, markdowns related to strategic initiatives of $29 million, and
inventory system refinements and changes in accounting estimates of $63 million.
Before the impact of these charges, cost of sales as a percentage of sales was
70.2%. Excluding these charges, the Toys USA division reported cost of sales as
a percentage of sales of 71.0% in 1998 and 70.5% in 1997. The Toys International
division, also excluding the charges, reported cost of sales as a percentage of
sales of 69.1% in 1998 and 68.8% in 1997. These increases were due to a change
in the sales mix consisting of a decrease in sales of higher margin action
figures and virtual pets, as well as higher sales of lower margin video software
merchandise. Consolidated cost of sales as a percentage of sales increased by
0.4% in 1997 from 69.4% in 1996 as a result of higher costs related to the
Company's promotional holiday selling program, higher than historical inventory
shrinkage and the continued strengthening of the Company's lower margin video
business.

Selling, advertising, general and administrative expenses (SG&A) as a percentage
of sales were 21.9% in 1998, 20.2% in 1997, and 20.3% in 1996. SG&A for 1998
includes $59 million of changes in accounting estimates and provisions for legal
settlements discussed below. Before the impact of these charges, SG&A as a
percentage of sales for 1998 was 21.3%. Excluding these charges, the Toys USA
division reported SG&A as a percentage of sales of 18.6% in 1998 and 17.5% in
1997, while Toys International's SG&A as a percentage of sales was 23.6% in 1998
and 23.1% in 1997. These increases were the result of the implementation of
strategic initiatives and store expansion, not offset by sales leveraging. The
slight decrease in consolidated SG&A in 1997 was primarily due to expense
control and sales leveraging, partially offset by additional distribution and
handling costs related to higher than planned inventory levels.

Depreciation, amortization and asset write-offs were $255 million, $253 million
and $206 million in 1998, 1997 and 1996, respectively. The increase in 1997
included $19 million in asset write-offs for store conversions.

During 1998 the Company announced strategic initiatives to reposition its
worldwide business and other charges including the customer-focused reformatting
of its toy stores into the new C-3 format, as well as the restructuring of its
International operations which resulted in a charge of $353 million ($279
million net of tax benefits, or $1.05 per share). The strategic initiatives
resulted in a restructuring charge of $294 million. The other charges of $59
million primarily consist of changes in accounting estimates and provisions for
legal settlements. The Company is closing and/or downsizing underperforming
stores and consolidating distribution centers and administrative offices. As a
result, approximately 2,600 employees will be terminated worldwide. Stores
expected to be closed had aggregate store sales and net operating losses of
approximately $322 million and $5 million, respectively, for the year ended
January 30, 1999. The write-down of property, plant and equipment relating to
the above mentioned closures and downsizings were based on both internal and
independent appraisals. Unused reserves at January 30, 1999, should be utilized
in 1999, with the exception of long-term lease commitments, which will be
utilized in 1999 and thereafter. Details on the components of the charges are
described in the Notes to the Consolidated Financial Statements and are as
follows:

*   References to 1998, 1997 and 1996, are for the 52 weeks ended January 30,
    1999, January 31, 1998 and February 1, 1997.


                                                                               9
<PAGE>

Management's Discussion and Analysis
RESULTS OF OPERATIONS AND FINANCIAL CONDITION

                                                                 Reserve Balance
Description                                 Charge    Utilized         @1/30/99
--------------------------------------------------------------------------------
Closings/Downsizings:
  Lease commitments                          $  81        $ --           $ 81
  Severance and other
  closing costs                                 29           4             25
  Write-down of property,
  plant & equipment                            155         155             --
  Other                                         29           5             24
--------------------------------------------------------------------------------
Total Restructuring                          $ 294        $164           $130
================================================================================
Changes in accounting
estimates and provisions
for legal settlements                        $  59        $ 20           $ 39
================================================================================

In 1998 the Company also announced markdowns and other charges of $345 million
($229 million net of tax benefits, or $.86 per share). Of this charge, $253
million relates to markdowns required to clear excess inventory from stores.
These markdowns should enable the Company to achieve its optimal inventory
assortment and streamline systems so that it can proceed with the C-3
conversions on an accelerated basis. The Company's objective with its new C-3
concept is to provide customers with a better shopping experience leading to
increased sales and higher inventory turns. In addition, the Company recorded
$29 million in markdowns related to the store closings discussed previously. The
Company also recorded charges to cost of sales of $63 million related to
inventory system refinements and changes in accounting estimates. Unused
reserves at January 30, 1999 are expected to be utilized in 1999. Details of the
markdowns and other charges are as follows:

                                                                 Reserve Balance
Description                            Charge     Utilized              @1/30/99
--------------------------------------------------------------------------------
Markdowns
    Clear excess inventory              $253        $179                    $ 74
    Store closings                        29           2                      27
Change in accounting
estimates and other                       63          57                       6
================================================================================
Total Cost of Sales                     $345        $238                    $107
================================================================================

The strategic initiatives, markdowns and other charges described above are
expected to improve the Company's free cash flow and increase operating
earnings.

The Company's 1996 results were impacted by a charge of $60 million ($38 million
net of tax benefits, or $.14 cents per share), relating to an arbitration award
rendered against the Company involving a dispute over a 1982 franchise agreement
to operate stores in the Middle East.

At January 30, 1999, the Company had approximately $45 million of reserves
remaining from its restructuring program announced in 1995, primarily relating
to long-term lease obligations. The Company believes these reserves are adequate
to complete the restructuring program.

Interest expense increased by $17 million in 1998, as compared to 1997,
primarily due to higher borrowings throughout the year as a result of the
Company's share repurchase programs. Also included in 1998 interest expense is
$6 million for the early extinguishment of long-term debt. Interest expense
decreased in 1997 as compared to 1996 primarily due to lower average short-term
borrowings and to a $325 million medium-term financing which replaced borrowings
carrying higher interest rates.

The Company's effective tax rate for 1998 was unfavorably affected by the
restructuring and other charges recorded in the third quarter of 1998. Excluding
the impact of these charges, the Company's effective tax rate was 36.5% in 1998,
as well as in 1997 and 1996.

International sales were unfavorably impacted by the translation of local
currency results into U.S. dollars by approximately $30 million, $250 million
and $150 million in 1998, 1997 and 1996, respectively. Neither the translation
of local currency results into U.S. dollars nor inflation had a material effect
on the Company's operating results for the last three years.

Liquidity & Capital Resources

The Company's cash flows from operations increased to $964 million in 1998 from
$509 million in 1997 primarily due to a significant reduction in inventories
during 1998 as well as higher accounts payable, accrued expenses and other
liabilities at January 30, 1999. Cash flows from operations decreased by $234
million in 1997 compared with 1996 primarily due to higher inventories.

Cash flows used for investing activities decreased by $94 million in 1998,
primarily due to fewer new store openings in 1998, as well as fewer store
conversions in 1998 compared with 1997. Store conversions were the primary
factor in the $79 million capital expenditure increase in 1997.

Cash flows used for financing activities decreased to $344 million in 1998 from
$498 million in 1997 primarily due to repayment of a $115 million Baby
Superstore obligation in 1997. The Company repurchased over 32 million shares of
its stock for $723 million in 1998, which was the primary reason for the
increase in total borrowings net of cash of


10
<PAGE>
Management's Discussion and Analysis         
RESULTS OF OPERATIONS AND FINANCIAL CONDITION

$200 million in 1998 as compared with 1997. Cash flows used for financing
activities increased by $709 million in 1997 compared with 1996 primarily due to
the $325 million medium term financing in 1996, as well as $253 million expended
for the Company's stock repurchase program in 1997.

On February 3, 1997, the Company acquired Baby Superstore, Inc. for 13 million
treasury shares of the Company's common stock valued at approximately $376
million. This acquisition was accounted for as a purchase as of February 1,
1997, and the excess of purchase price over net assets acquired in the amount of
$365 million has been recorded as goodwill and is being amortized over 40 years.

In 1999, the Company plans to open approximately 10 toy stores in the United
States and approximately 25 international toy stores, including 10 franchise
stores. Our newest division, Babies"R"Us, will open approximately 20 stores in
the United States. 

For 1999, capital requirements for real estate, store and warehouse fixtures and
equipment,  leasehold improvements and other additions to property and equipment
are  estimated  at  approximately  $550  million.  These plans  include the full
conversion  of  approximately  200 toy stores and the partial  conversion  of an
additional 125 toy stores in the United States to the C-3 format.

In 1998 the Company repurchased over 32 million shares of its common stock
through its share repurchase programs for a total of $723 million. In 1998 the
Company completed its $1 billion share repurchase program announced in January
1994, and has $330 million remaining in its $1 billion share repurchase program
announced in January 1998.

The seasonal nature of the business (approximately 45% of sales take place in
the fourth quarter) typically causes cash to decline from the beginning of the
year through October as inventory increases for the holiday selling season and
funds are used for land purchases and construction of new stores, which usually
open in the first ten months of the year. The Company has a $1 billion
multi-currency unsecured committed revolving credit facility expiring in
December 2002, from a syndicate of financial institutions. There were no
outstanding balances under this revolver at January 1999, 1998, and 1997. Cash
requirements for operations, capital expenditures, lease commitments and the
share repurchase program will be met primarily through operating activities,
borrowings under the revolving credit facility, issuance of commercial paper
and/or other bank borrowings for foreign subsidiaries.

Quantitative and Qualitative
Disclosures About Market Risks

The Company is exposed to market risk from potential changes in interest rates
and foreign exchange rates. The Company regularly evaluates these risks and has
taken the following measures to mitigate these risks: the countries in which the
Company owns assets and operates stores are politically stable; the Company's
foreign exchange risk management objectives are to stabilize cash flow from the
effects of foreign currency fluctuations; the Company will, whenever practical,
offset local investments in foreign currencies with borrowings denominated in
the same currencies; the Company also enters into foreign exchange contracts or
purchases options to eliminate specific transaction risk. The market risk
related to these derivative contracts is offset by the changes in value of the
underlying items being hedged. Approximately half of the Company's long-term
debt is at fixed interest rates and therefore, the fair value is affected by
changes in market interest rates. The Company believes the amount of risk and
the use of derivative financial instruments described above are not material to
the Company's financial condition or results of operations.

Impact of Year 2000

Year 2000 issues are those related to the inability of certain computer systems
to properly recognize and process date-sensitive information relative to the
year 2000 and beyond. The Company's Year 2000 project which began in 1997,
includes four major elements: 1) information technology (IT) systems, 2) non-IT
systems, 3) relationships with key business partners and 4) contingency
planning. The Company has substantially completed the required coding
conversions and testing on IT and non-IT systems as of January 30, 1999. The
Company will continue to perform full integrated testing in 1999. The Company
has utilized both internal and external resources to implement the conversion of
its systems for Year 2000 compliance.

The total estimated cost to achieve Year 2000 compliance is approximately $25
million, which is being expensed as incurred. These estimates exclude internal
labor and related costs. Approximately $20 million of these costs have been
incurred as of January 30, 1999. All of these costs are being funded through
cash flows from operations. The Company has identified significant business
partners and is working closely with them to understand their Year 2000
compliance status. The Company anticipates minimal business interruption to
occur as a result of Year 2000 issues within its control. However, possible
consequences include, but are not limited to, loss of communication links with
store locations, loss of electric power, delayed product deliveries from major
suppliers, and


                                                                              11
<PAGE>
Management's Discussion and Analysis         
RESULTS OF OPERATIONS AND FINANCIAL CONDITION

      the inability to process transactions or engage in similar normal business
      activities.  In addition,  not all customer situations can be anticipated.
      The  Company  may  experience  an  increase  of sales  returns of products
      containing hardware or software  components.  Such returns, if they occur,
      are  likely  to be the  responsibility  of the  manufacturers  and are not
      expected to be material to the Company's financial condition or results of
      operations.  The Company  believes the  readiness of third  parties is the
      most  significant  area of  risk  to the  Company  related  to Year  2000.
      However,  the Company also  believes that ongoing  communication  with and
      assessment  of readiness of these third  parties will  minimize this risk.
      The Company has begun to develop but has not yet  finalized a  contingency
      plan for possible Year 2000 issues.  Contingency  plans are expected to be
      in place by the end of the second quarter of 1999.

The total cost of the Year 2000 project is not expected to have a material
effect on the Company's financial condition or results of operations. The costs
of conversion and the completion dates for the project are management's best
estimates.

Recent Accounting Pronouncements

In June 1997, the Financial Accounting Standards Board issued SFAS No. 130 -
Reporting Comprehensive Income, which requires the separate reporting of all
changes to stockholders' equity, and SFAS No. 131 - Disclosures About Segments
of an Enterprise and Related Information, which revises existing guidelines
about the level of financial disclosure of a Company's operations. In March
1998, the Accounting Standards Executive Committee issued Statement of Position
98-1, Accounting for Computer Software Developed for Internal Use, which
requires capitalization of certain costs to develop internal use computer
software. These statements were adopted by the Company in fiscal 1998 and did
not have a material effect on the consolidated financial position, results of
operations or cash flows of the Company.

In June 1998, the Financial Accounting Standards Board issued Statement No. 133
- Accounting for Derivative Instruments and Hedging Activities, which the
Company is required to adopt in its fiscal year beginning February 2000. SFAS
No. 133 requires that all derivative instruments be recorded on the balance
sheet at fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and the type of hedge
transaction. The ineffective portion of all hedges will be recognized in
earnings. While not expected to be material, the Company is in the process of
determining the impact that the adoption of SFAS No. 133 will have on the
consolidated financial position, results of operations and cash flows of the
Company.

Euro Conversion

The Company has developed a plan to ensure business and systems continuity
during the introduction of the Euro currency in certain of the Company's
European operations. The initial phase of this plan was implemented prior to the
January 1, 1999 (Phase 1) introduction of the Euro. Further implementation of
this plan is scheduled to coincide with the transition phases (Phases 2 and 3)
of completely converting from local denominated currencies to the Euro (the
"Euro conversion"). Total costs for the entire Euro conversion program are not
expected to be material. Based on the actions taken to date, the Company does
not expect the Euro conversion to have a material effect on the consolidated
financial position, results of operations or cash flows of the Company.

Forward Looking Statements 

This annual report contains "forward looking" statements which are intended to
be covered by the safe harbors created thereby. All statements that are not
historical facts, including statements about the Company's beliefs or
expectations, are forward-looking statements. Such statements involve risks and
uncertainties that exist in the Company's operations and business environment
that could render actual outcomes and results materially different than
predicted. The Company's forward-looking statements are based on assumptions
about many factors, including, but not limited to, ongoing competitive pressures
in the retail industry, changes in consumer spending, general economic
conditions in the United States and other jurisdictions in which the Company
conducts business (such as interest rates and consumer confidence) and normal
business uncertainty. While the Company believes that its assumptions are
reasonable at the time forward-looking statements were made, it cautions that it
is impossible to predict the actual outcome of numerous factors and, therefore,
readers should not place undue reliance on such statements. Forward-looking
statements speak only as of the date they are made, and the Company undertakes
no obligation to update such statements in light of new information or future
events that involve inherent risks and uncertainties. Actual results may differ
materially from those contained in any forward looking statement.


12
<PAGE>

Consolidated Statements of Earnings
TOYS "R"US, INC. AND SUBSIDIARIES

                                                                     Year Ended
                                          -------------------------------------
                                          January 30,  January 31,  February 1,
(In millions except per share data)             1999         1998         1997
-------------------------------------------------------------------------------
Net Sales                                   $ 11,170     $ 11,038      $ 9,932
Cost of sales                                  8,191        7,710        6,892
-------------------------------------------------------------------------------
         Gross Profit                          2,979        3,328        3,040
-------------------------------------------------------------------------------

Selling, advertising, general and
administrative expenses                        2,443        2,231        2,020
Depreciation, amortization
and asset write-offs                             255          253          206
Restructuring and other charges                  294           --           60
-------------------------------------------------------------------------------
         Total Operating Expenses              2,992        2,484        2,286
-------------------------------------------------------------------------------

         Operating (Loss)/Income                 (13)         844          754

Interest expense                                 102           85           98
Interest and other income                         (9)         (13)         (17)
-------------------------------------------------------------------------------
         Interest Expense, Net                    93           72           81
-------------------------------------------------------------------------------

(Loss)/Earnings Before Income Taxes             (106)         772          673
Income Taxes                                      26          282          246
-------------------------------------------------------------------------------
Net (Loss)/Earnings                         $   (132)    $    490      $   427
===============================================================================

Basic (Loss)/Earnings Per Share             $  (0.50)    $   1.72      $  1.56
===============================================================================
Diluted (Loss)/Earnings Per Share           $  (0.50)    $   1.70      $  1.54
===============================================================================

See notes to consolidated financial statements

                                                                         [PHOTO]
                                       The "R"Us brand has successfully captured
                              young imaginations and a significant market share.


                                                                              13
<PAGE>

[PHOTO]
Our ever-expanding outdoor and sports           
headquarters features everything fun
under the sun.

Consolidated Balance Sheets
TOYS "R"US INC. AND SUBSIDIARIES

                                                      January 30,  January 31,
(In millions)                                               1999          1998
------------------------------------------------------------------------------
Assets

Current Assets:

Cash and cash equivalents                               $    410      $   214
Accounts and other receivables                               204          175
Merchandise inventories                                    1,902        2,464
Prepaid expenses and other current assets                     81           51
------------------------------------------------------------------------------
         Total Current Assets                              2,597        2,904

Property and Equipment:

Real estate, net                                           2,354        2,435
Other, net                                                 1,872        1,777
------------------------------------------------------------------------------
         Total Property and Equipment                      4,226        4,212

Goodwill, net                                                347          356
Other assets                                                 729          491
------------------------------------------------------------------------------
                                                        $  7,899      $ 7,963
==============================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

Short-term borrowings                                   $    156      $   134
Accounts payable                                           1,415        1,280
Accrued expenses and other current liabilities               696          680
Income taxes payable                                         224          231
------------------------------------------------------------------------------
         Total Current Liabilities                         2,491        2,325

Long-Term Debt                                             1,222          851
Deferred Income Taxes                                        333          219
Other Liabilities                                            229          140

Stockholders' Equity:

Common stock                                                  30           30
Additional paid-in capital                                   459          467
Retained earnings                                          4,478        4,610
Foreign currency translation adjustments                    (100)        (122)
Treasury shares, at cost                                  (1,243)        (557)
------------------------------------------------------------------------------
         Total Stockholders' Equity                        3,624        4,428
------------------------------------------------------------------------------
                                                        $  7,899      $ 7,963
==============================================================================

See notes to consolidated financial statements.


14
<PAGE>

Consolidated Statements of Cash Flows
TOYS "R"US, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
                                     
                                                                                          Year Ended
                                                                ------------------------------------
                                                                 January 30, January 31, February 1,
(In millions)                                                          1999        1998        1997
----------------------------------------------------------------------------------------------------
<S>                                                                    <C>        <C>         <C>    
CASH FLOWS FROM OPERATING ACTIVITIES

Net (loss)/earnings                                                   $(132)      $ 490       $ 427
Adjustments to reconcile net (loss)/earnings to net cash
      provided by operating activities:
      Depreciation, amortization and asset write-offs                   255         253         206
      Deferred income taxes                                             (90)         18          23
      Restructuring and other charges                                   546          --          --
      Changes in operating assets and liabilities:
      Accounts and other receivables                                    (43)        (40)        (14)
      Merchandise inventories                                           233        (265)       (195)
      Prepaid expenses and other operating assets                       (27)         (9)        (10)
      Accounts payable, accrued expenses and other liabilities          229          22         262
      Income taxes payable                                               (7)         40          44
----------------------------------------------------------------------------------------------------
Net cash provided by operating activities                               964         509         743
----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures, net                                              (373)       (494)       (415)
Other assets                                                            (49)        (22)        (36)

Cash received with the acquisition of Baby Superstore                    --         --           67
----------------------------------------------------------------------------------------------------
Net cash used in investing activities                                  (422)       (516)       (384)
----------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Short-term borrowings, net                                                4        (142)        (10)
Long-term borrowings                                                    771          11         326
Long-term debt repayments                                              (412)       (176)       (133)
Exercise of stock options                                                16          62          28
Share repurchase program                                               (723)       (253)         --
----------------------------------------------------------------------------------------------------
Net cash (used in)/provided by financing activities                    (344)       (498)        211
----------------------------------------------------------------------------------------------------

Effect of exchange rate changes on cash
 and cash equivalents                                                    (2)        (42)        (12)

CASH AND CASH EQUIVALENTS

Increase/(decrease) during year                                         196        (547)        558
Beginning of year                                                       214         761         203
----------------------------------------------------------------------------------------------------
End of year                                                           $ 410       $ 214       $ 761
====================================================================================================

SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION

Income Tax Payments                                                   $ 122       $ 192       $ 177
Interest Payments                                                     $ 109       $  83       $ 109
====================================================================================================
</TABLE>

See notes to consolidated financial statements 


                                                                              15
<PAGE>

Consolidated Statements of Stockholders' Equity
TOYS "R" US, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
                                                Common Stock          
                                      ------------------------------                     Foreign
                                         Issued        In Treasury        Additional     currency                              Total
                                      -------------   --------------        paid-in     translation       Retained    stockholders'
(In millions)                         Shares Amount   Shares  Amount        capital     adjustments       earnings           equity
------------------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>       <C>   <C>       <C>           <C>            <C>             <C>             <C>   
Balance, February 3, 1996             300.4     $30   (27.3) $  (846)         $ 542       $  13            $ 3,693         $ 3,432
Net earnings for the year              --        --      --       --             --          --                427             427
Foreign currency translation
  adjustments                          --        --      --       --             --         (73)                --             (73)
  Comprehensive Income                                                                                                         354
Acquisition of Baby Superstore, Inc.   --        --    13.0      400            (23)         --                 --             377
Exercise of stock options, net         --        --     1.7       58            (30)         --                 --              28
------------------------------------------------------------------------------------------------------------------------------------
Balance, February 1, 1997             300.4      30   (12.6)    (388)           489         (60)             4,120            4,191
------------------------------------------------------------------------------------------------------------------------------------
Net earnings for the year              --        --      --       --             --          --                490             490
Foreign currency translation
  adjustments                          --        --      --       --             --         (62)                --             (62)
  Comprehensive Income                                                                                                         428
Share repurchase program               --        --    (8.2)    (253)            --          --                 --            (253)
Exercise of stock options, net         --        --     2.8       84            (22)         --                 --              62
------------------------------------------------------------------------------------------------------------------------------------
Balance, January 31, 1998             300.4      30   (18.0)    (557)           467        (122)             4,610           4,428
------------------------------------------------------------------------------------------------------------------------------------
Net loss for the year                  --        --      --       --             --          --               (132)           (132)
Foreign currency translation
  adjustments                          --        --      --       --             --          22                 --              22
  Comprehensive loss                                                                                                          (110)
Share repurchase program               --        --   (32.2)    (723)            --          --                 --            (723)
Issuance of restricted stock           --        --      --       15             (2)         --                 --              13
Exercise of stock options, net         --        --      .4       22             (6)         --                 --              16
------------------------------------------------------------------------------------------------------------------------------------
Balance, January 30, 1999             300.4     $30   (49.8) $(1,243)         $ 459       $(100)           $ 4,478         $ 3,624
====================================================================================================================================
</TABLE>
See notes to consolidated financial statements 

[PHOTO]
#1 for Family Fun!
For generations Toys"R"Us
has given families ways to 
spend quality time together.


16
<PAGE>

Notes to Consolidated Financial Statements
TOYS "R"US, INC. AND SUBSIDIARIES

(Amounts in millions except per share data)
Summary of Significant Accounting Policies

Fiscal Year

The Company's  fiscal year ends on the Saturday nearest to January 31. Reference
to 1998, 1997 and 1996 are for the 52 weeks ended January 30, 1999,  January 31,
1998, and February 1, 1997, respectively.

Principles of Consolidation

The consolidated  financial  statements  include the accounts of the Company and
its subsidiaries.  The 1996  consolidated  statement of cash flows also reflects
the acquisition of Baby Superstore,  Inc. All material intercompany balances and
transactions have been eliminated.  Assets and liabilities of foreign operations
are  translated  at current  rates of exchange  at the balance  sheet date while
results of operations  are translated at average rates in effect for the period.
Translation  gains or losses are shown as a separate  component of stockholders'
equity.

Cash and Cash Equivalents

The Company considers its highly liquid investments with original  maturities of
less than three months to be cash equivalents.

Merchandise Inventories

Merchandise  inventories for the U.S.A.  toy store  operations,  which represent
approximately  60% of  total  inventories,  are  stated  at the  lower  of  LIFO
(last-in,  first-out)  cost or market,  as  determined  by the retail  inventory
method.  If  inventories  had  been  valued  at the  lower  of  FIFO  (first-in,
first-out) cost or market,  inventories would show no change at January 30, 1999
or January 31, 1998. All other  merchandise  inventories are stated at the lower
of FIFO cost or market as determined by the retail inventory method.

Property and Equipment

Property and equipment are recorded at cost. Depreciation and amortization are
provided using the straight-line method over the estimated useful lives of the
assets or, where applicable, the terms of the respective leases, whichever is
shorter. The Company evaluates the need to recognize impairment losses relating
to long-lived assets based on several factors including, but not limited to,
management's plans for future operations, recent operating results and projected
cash flows.

Preopening Costs

Preopening costs, which consist primarily of advertising, occupancy and payroll
expenses, are amortized over expected sales to the end of the fiscal year in
which the store opens.

Financial Instruments

The  carrying  amounts  reported  in  the  balance  sheets  for  cash  and  cash
equivalents and short-term borrowings approximate their fair market values.

Forward Foreign Exchange Contracts

The Company enters into forward foreign exchange contracts to eliminate the risk
associated with currency movement  relating to its short-term  intercompany loan
program with foreign subsidiaries and inventory purchases denominated in foreign
currency.  Gains  and  losses,  which  offset  the  movement  in the  underlying
transactions,  are  recognized  as  part of such  transactions.  Gross  deferred
unrealized gains and losses on the forward contracts were not material at either
January 30,  1999 or January  31,  1998.  The  related  receivable,  payable and
deferred  gain or loss are  included  on a net basis in the balance  sheet.  The
Company had $209 and $439 of short term outstanding forward contracts at January
30, 1999 and January 31, 1998,  maturing in 1999 and 1998,  respectively.  These
contracts are entered into with counterparties that have high credit ratings and
with  which  the  Company  has the  contractual  right to net  forward  currency
settlements.  In  addition,  the Company  had a $342  currency  swap  obligation
outstanding  at January 30, 1999 related to its 475 Swiss franc note payable due
2004. 

Use of Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  amounts  reported  in the  consolidated  financial  statements  and
accompanying notes. Actual results could differ from those estimates.


                                                                              17
<PAGE>

PROPERTY AND EQUIPMENT
                                   Useful Life     January 30,      January 31,
                                    (in years)           1999             1998
-------------------------------------------------------------------------------
Land                                                  $   829         $    817
Buildings                                45-50          1,842            1,849
Furniture and equipment                   5-20          1,861            1,711
Leaseholds and
         leasehold improvements      12 1/2-35          1,213            1,158
Construction in progress                                   42               46
Leased property
         under capital leases                              27               29
-------------------------------------------------------------------------------
                                                        5,814            5,610
Less accumulated depreciation
         and amortization                               1,588            1,398
===============================================================================
                                                      $ 4,226          $ 4,212
===============================================================================

Seasonal Financing
and Long-Term Debt

                                                   January 30,      January 31,
                                                         1999             1998
-------------------------------------------------------------------------------
Commercial Paper                                      $   368          $    --
  interest rates from 4.87% to 4.89%       
475 Swiss franc note payable, due 2004(a)                 342               --
8 3/4% debentures, due 2021,
  net of expenses                                         198              198
Japanese yen loans with interest payable
  at annual rates from 1.49% to 6.47%,
  due in varying amounts through 2012                     198              123
Industrial revenue bonds,
  net of expenses (b)                                      60               60
7% British pound sterling loan payable,
  due quarterly through 2001(c)                            33               49
8 1/4% sinking fund debentures,
  due 2017, net of discounts                               24               89
Mortgage notes payable at annual
  interest rates from 10.16% to 11.00% (d)                 11               14
Obligations under capital leases                           11               14
5.78% 200 British pound sterling note payable (e)          --              325
-------------------------------------------------------------------------------
                                                        1,245              872
Less current portion (f)                                   23               21
-------------------------------------------------------------------------------
                                                      $ 1,222          $   851
===============================================================================

(a) Supported by a 406 Swiss franc bank letter of credit. This note has been
converted by an interest rate and currency swap to a floating rate, US dollar
obligation at 3 month LIBOR less approximately 107 basis points.

(b) Bank letters of credit of $41,  expiring in 2000,  support  certain of these
industrial  revenue bonds.  The Company  expects that the bank letters of credit
will be renewed. The bonds have fixed or variable interest rates with an average
rate of 3.6% at January 30, 1999.

(c)  Collateralized  by  property  with a carrying  value of $160 at January 30,
1999.

(d) Collateralized by property and equipment with an aggregate carrying value of
$15 at January 30, 1999.

(e) Supported by a 200 British pound  sterling bank letter of credit.  This note
was redeemed on January 29, 1999.

(f)  Included  in  accrued  expenses  and  other  current   liabilities  on  the
consolidated balance sheets.

The fair market  value of the  Company's  long-term  debt at January  30,  1999,
exclusive of commercial paper, and January 31, 1998 were  approximately $980 and
$1,004,  respectively.  The fair market value was estimated  using quoted market
rates for publicly traded debt and estimated interest rates for non-public debt.

The Company  has a $1 billion  unsecured  committed  revolving  credit  facility
expiring in December 2002. This  multi-currency  facility permits the Company to
borrow at the lower of LIBOR  plus a fixed  spread or a rate set by  competitive
auction.  The  facility  is  available  to  support  domestic  commercial  paper
borrowings and to meet worldwide cash requirements.

Commercial  paper is  classified  as  long-term  debt at January 30, 1999 as the
company maintains long-term committed credit agreements,  as described above, to
support  these  borrowings  and intends to refinance  them on a long-term  basis
through  continued  commercial  paper  borrowings.  Commercial  paper  of $70 at
January 31, 1998 was included in short-term borrowings.


Additionally,  the Company also has lines of credit with  various  banks to meet
the short-term financing needs of its foreign subsidiaries.

The weighted  average  interest rate on  short-term  borrowings  outstanding  at
January 30, 1999 and January 31, 1998 was 3.8% and 5.0%, respectively.

The  annual  maturities  of  long-term  debt  at  January  30,  1999,  excluding
commercial paper of $368, are as follows:
------------------------------------------------------------------------
1999                                                               $  23  
2000                                                                  65
2001                                                                   7
2002                                                                   8
2003                                                                   7
2004 and subsequent                                                  767
========================================================================
                                                                   $ 877
========================================================================
Leases              

The Company leases a portion of the real estate used in its operations. Most
leases require the Company to pay real estate taxes and other expenses; some
require additional amounts based on percentages of sales. Minimum rental
commitments under noncancelable operating leases having a term of more than one
year as of January 30, 1999 are as follows:

                                                     Gross             Net     
                                                     minimum  Sublease minimum
                                                     rentals  income   rentals
-------------------------------------------------------------------------------
1999                                                  $   355    $ 20   $   335
2000                                                      352      18       334
2001                                                      346      15       331
2002                                                      339      13       326
2003                                                      338      11       327
2004 and subsequent                                     2,964      60     2,904
-------------------------------------------------------------------------------
                                                      $ 4,694   $ 137   $ 4,557
===============================================================================
                                                 
Total rent expense, net of sublease income was $334, $309 and $282 in 1998, 1997
and 1996, respectively.


18
<PAGE>

STOCKHOLDERS' EQUITY

The common shares of the Company, par value $.10 per share, were as follows:

                                               January 30,        January 31,
                                                      1999               1998  
--------------------------------------------------------------------------------
Authorized shares                                    650.0              650.0
--------------------------------------------------------------------------------
Issued shares                                        300.4              300.4
--------------------------------------------------------------------------------
Treasury shares                                       49.8               18.0
--------------------------------------------------------------------------------
Issued and outstanding shares                        250.6              282.4
================================================================================

EARNINGS PER SHARE                                         

The following table sets forth the computation of basic and diluted earnings per
share:

                                                 1998        1997       1996
--------------------------------------------------------------------------------
Numerator:
Net(loss)/income available to
  common stockholders                            $ (132)    $  490    $   427

Denominator for basic earnings
  per share - weighted average
  shares                                          265.4      285.3      274.0

Effect of diluted securities:
  Stock options, etc                                 --        3.1        3.5
Denominator for diluted
  earnings per share - adjusted
  weighted average shares                         265.4      288.4      277.5
--------------------------------------------------------------------------------
Basic (Loss)/Earnings per share                 $ (0.50)    $ 1.72    $  1.56
--------------------------------------------------------------------------------
Diluted (Loss)/Earnings per share               $ (0.50)    $ 1.70    $  1.54
================================================================================

Options to purchase approximately 25.0 shares of common stock were outstanding
during 1998, but were not included in the computation of diluted loss per share
as the effect would be antidilutive. 

Taxes on Income

The provisions for income taxes consist of the following:

                                             1998           1997           1996
--------------------------------------------------------------------------------
Current:
  Federal                                   $  78          $ 199          $ 136
  Foreign                                      18             35             57
  State                                        20             30             30
--------------------------------------------------------------------------------
                                              116            264            223
--------------------------------------------------------------------------------
Deferred:
  Federal                                     (64)            32             58
  Foreign                                      (9)           (17)           (39)
  State                                       (17)             3              4
--------------------------------------------------------------------------------
                                              (90)            18             23
--------------------------------------------------------------------------------
Total tax provision                         $  26          $ 282          $ 246
================================================================================

The tax effects of temporary differences and carry forwards that give rise to
significant portions of deferred tax assets and liabilities consist of the
following:

                                                    January 30,     January 31,
                                                           1999            1998
--------------------------------------------------------------------------------
Deferred tax assets:                                                
  Foreign net operating loss carryforwards                $ 311           $ 214
  Restructuring                                              92              20
  Other                                                      27              42
--------------------------------------------------------------------------------
  Gross deferred tax assets                                 430             276
  Valuation allowance related to                                    
  net operating losses                                     (141)            (43)
--------------------------------------------------------------------------------
                                                          $ 289           $ 233
--------------------------------------------------------------------------------
Deferred tax liabilities:                                           
  Property, plant and equipment                             281             277
  LIFO inventory                                             50              88
  Other tax                                                  --              --
--------------------------------------------------------------------------------
Gross deferred tax liabilities                            $ 331           $ 365
================================================================================
Net deferred tax liability                                $  42           $ 132
================================================================================

A reconciliation of the federal statutory tax rate with the effective tax rate
follows:

                                                 1998        1997        1996
--------------------------------------------------------------------------------
Statutory tax rate                               35.0%       35.0%       35.0%
State income taxes, net of
         federal income tax benefit              (4.2)        3.2         3.7
Foreign taxes, net of
         valuation allowances                   (52.3)       (2.3)       (2.3)
Subpart F income                                 (8.5)         --          --
Foreign tax credits                               6.8          --          --
Amortization of goodwill                         (3.0)        0.4          --

Other, net                                        1.7         0.2         0.1
--------------------------------------------------------------------------------
Effective tax rate                              (24.5)%      36.5%       36.5%
================================================================================

Certain foreign tax benefits have been offset by valuation allowances related to
net operating losses due in part to the restructuring and other charges recorded
in 1998. Deferred income taxes are not provided on unremitted earnings of
foreign subsidiaries that are intended to be indefinitely invested. Exclusive of
amounts, that if remitted would result in little or no tax under current U.S.
tax laws, unremitted earnings were approximately $515 at January 30, 1999. Net
income taxes of approximately $139 would be due if these earnings were to be
remitted.


                                                                              19
<PAGE>

STOCK OPTIONS

The Company has Stock Option Plans (the "Plans") which provide for the granting
of options to purchase the Company's common stock. The plans cover substantially
all employees and non-employee directors of the Company and provide for the
issuance of non-qualified options, incentive stock options, performance share
options, performance units, stock appreciation rights, restricted shares,
restricted units and unrestricted shares. Of the total number of shares reserved
for the Plans, 3.0 shares of Company stock have been reserved for the issuance
of restricted shares, restricted units, performance units, and unrestricted
shares. The Plans provide for a variety of vesting dates with the majority of
the options vesting approximately five years from the date of grant. The options
granted to non-employee directors are exercisable 20% each year on a cumulative
basis commencing one year from the date of grant.

In addition to the aforementioned plans, 1.0 stock options were granted to
certain senior executives during the period from 1993 to 1996 pursuant to
stockholder approved individual plans. Of this total, 0.5 options vest 20% each
year on a cumulative basis commencing one year from the date of grant with the
balance of the options vesting five years from the date of grant.

The exercise price per share of all options granted has been the average of the
high and low market price of the Company's common stock on the date of grant.
All options must be exercised within ten years from the date of grant.

At January 30, 1999, an aggregate of 46.3 shares of authorized common stock were
reserved for all of the Plans noted above, of which 9.5 were available for
future grants. All outstanding options expire at dates ranging from July 5, 1999
to November 30, 2008.

Stock option transactions are summarized as follows:

                                                         Weighted-Average
                                             Shares        Exercise Price      
--------------------------------------------------------------------------------
Outstanding January 31, 1998                   24.1               $ 29.12
Granted                                        17.7                 22.18
Exercised                                      (0.7)                17.99
Canceled                                       (4.3)                28.89
--------------------------------------------------------------------------------
Outstanding January 30, 1999                   36.8               $ 26.02
--------------------------------------------------------------------------------
Options exercisable                                      
  at January 30, 1999                          10.8               $ 28.25
================================================================================

The Company utilizes a restoration feature to encourage the early exercise of
certain options and retention of shares, thereby promoting increased employee
ownership. This feature provides for the grant of new options when previously
owned shares of Company stock are used to exercise existing options. Restoration
option grants are non-dilutive as they do not increase the combined number of
shares of Company stock and options held by an employee prior to exercise. The
new options are granted at a price equal to the fair market value on the date of
the new grant, and generally expire on the same date as the original options
that were exercised. 

The Company has adopted the disclosure only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation, issued in October 1995. In accordance
with the provisions of SFAS No. 123, the Company applies APB Opinion 25 and
related interpre-tations in accounting for its stock option plans and,
accordingly, does not recognize compensation cost. If the Company had elected to
recognize compensation cost based on the fair value of the options granted at
grant date as prescribed by SFAS No. 123, net income and earnings per share
would have been reduced to the pro forma amounts indicated in the table below:

                                                  1998        1997      1996
--------------------------------------------------------------------------------
Net (loss)/income - as reported                 $ (132)     $  490     $  427
Net (loss)/income - pro forma                     (162)        470        411
Basic (loss)/earnings per share -
  as reported                                    (0.50)       1.72       1.56
Basic (loss)/earnings per share -             
  pro forma                                      (0.61)       1.65       1.50
Diluted (loss)/earnings per share -           
  as reported                                    (0.50)       1.70       1.54
Diluted (loss)/earnings per share -           
  pro forma                                      (0.61)       1.63       1.48
--------------------------------------------------------------------------------

The weighted-average fair value at date of grant for options granted in 1998,
1997 and 1996 were $5.31, $7.66 and $7.35, respectively. The fair value of each
option grant is estimated on the date of grant using the Black-Scholes option
pricing model. As there were a number of options granted during the years of
1996 through 1998, a range of assumptions are provided below:

                                       1998           1997            1996
--------------------------------------------------------------------------------
Expected stock price volatility     .283 - .347    .294 - .334     .284 - .328
Risk-free interest rate              4.7% - 5.8%   5.0% - 6.9%      5.0% - 6.8%
Weighted average
    expected life of options          6 years        6 years          6 years
--------------------------------------------------------------------------------

The effects of applying SFAS No. 123 and the results obtained through the use of
the Black-Scholes option pricing model are not necessarily indicative of future
values. 

PROFIT SHARING PLAN 

The Company has a profit sharing plan with a 401(k) salary deferral feature for
eligible domestic employees. The terms of the plan call for annual contributions
by the Company as determined by the Board of Directors, subject to certain
limitations. The profit sharing plan may be terminated at the Company's
discretion. Provisions of $41, $39 and $31 have been charged to earnings in
1998, 1997, and 1996, respectively.


20

<PAGE>

SEGMENTS

As a result of the adoption of SFAS No. 131 - Disclosures About Segments of an
Enterprise and Related Information, segment information for 1997 and 1996 has
been restated to conform to the 1998 presentation. 

The Company's reportable segments are Toys"R"Us - United States and Toys"R"Us -
International. Divisions that do not meet quantitative reportable thresholds are
included in the category classified as Other. This category is comprised of the
Kids"R"Us and Babies"R"Us divisions. Toys"R"Us - United States operates toy
stores in 49 states and Puerto Rico and Toys"R"Us - International operates or
franchises toy stores in 26 countries outside the United States. Information on
segments and a reconciliation to (loss)/income before income taxes, are as
follows:

                                                                   Year ended
--------------------------------------------------------------------------------
                                   January 30,     January 31,    February 1,
                                          1999            1998          1997
--------------------------------------------------------------------------------
Sales                                                            
  Toys"R"Us - USA                     $  6,581        $  6,814       $ 6,336
  Toys"R"Us - International              2,996           2,867         2,781
  Other                                  1,593           1,357           815
--------------------------------------------------------------------------------
Total                                 $ 11,170        $ 11,038       $ 9,932
--------------------------------------------------------------------------------
Operating Profit                                                 
  Toys"R"Us - USA                     $    501        $    654       $   650
  Toys"R"Us - International                146             165           126
  Other                                     59              41            48
  General corporate                                              
  expenses                                 (21)            (16)          (10)
  Interest expense, net                    (93)            (72)          (81)
  Restructuring & other charges           (698)(a)        --             (60)(b)
--------------------------------------------------------------------------------
(Loss)/earnings before taxes                                     
  on income                           $   (106)       $    772       $   673
================================================================================
Identifiable Assets                                              
  Toys"R"Us - USA                     $  5,075        $  5,193       $ 3,889
  Toys"R"Us - International              2,095           2,282         2,346
  Other                                    303             243           993
  Corporate(c)                             426             245           795
--------------------------------------------------------------------------------
Total                                 $  7,899        $  7,963       $ 8,023
================================================================================

(a) The Company recorded charges of $698 ($508 net of tax benefits) for
restructuring and other charges.

(b) Arbitration award charge of $60 ($38 net of tax benefits). 

(c) Consists primarily of cash and cash equivalents.

ACQUISITION

On February 3, 1997, the Company acquired all of the outstanding common shares
of Baby Superstore, Inc. ("Baby Superstore") for 13 shares of its treasury stock
valued at approximately $376. This acquisition was accounted for as a purchase
as at February 1, 1997. The excess of purchase price over net assets acquired of
$365 has been recorded as goodwill and is being amortized on a straight-line
basis over 40 years. 

RESTRUCTURING AND OTHER CHARGES 

On September 16, 1998, the Company announced strategic initiatives to reposition
its worldwide business. The cost to implement these initiatives, as well as
other charges resulted in a total charge of $333 ($266 net of tax benefits, or
$1.00 per share). The Company determined that the strategic initiatives required
a restructuring charge of $294 to close and/or downsize stores, distribution
centers and administrative functions. This worldwide plan includes the closing
of 50 toy stores in the International division, predominately in continental
Europe, and 9 in the United States that do not meet the Company's return on
investment objectives. The Company will also close 31 Kids"R"Us stores and
convert 28 nearby US toy stores into combination stores in the new C-3 format
discussed below. Combination stores include toys and an apparel selling space of
approximately 5,000 square feet. Other charges consist primarily of changes in
accounting estimates and provisions for legal settlements of $39 recorded in
selling, general and administrative expenses. Of the total restructuring and
other charges, $149 relates to domestic operations and $184 relates to
International operations. Remaining reserves of $149 should be utilized in 1999,
with the exception of long-term lease commitments, which will be utilized in
1999 and thereafter.

Also on September 16, 1998, the Company announced mark-downs and other charges
to cost of sales of $345 ($229 net of tax benefits, or $.86 per share). The
Company has designed a new store format called C-3. The Company plans to convert
approximately 200 US toy stores to the new C-3 format in 1999. Of this charge,
$253 related to markdowns required to clear excess inventory from its stores so
the Company can proceed with its new C-3 store format on an accelerated basis.
Another component of the charge was inventory markdowns of $29 related to the
closing and/or downsizing of stores discussed above. The Company also recorded
charges to cost of sales of $63 related to inventory system refinements and
changes in accounting estimates. Of these charges, $288 relate to domestic
operations and $57 relate to International operations. Remaining reserves of
$107 are expected to be utilized in 1999.

Additionally, in the fourth quarter of 1998 the Company recorded a charge of $20
($13 net of tax benefits, or $.05 per share), related to the resolution of third
party claims asserted from allegations made by the Federal Trade Commission.
This charge was in addition to a $15 charge relating to the same matter,
included in the charges mentioned above. (See Other Matters).


                                                                              21
<PAGE>

At January 30, 1999, the Company had approximately $45 of liabilities remaining
for its restructuring program announced in 1995 primarily relating to long-term
lease obligations.

The Company believes that reserves are adequate to complete the restructuring
and other programs described previously.

On July 12, 1996, an arbitrator rendered an award against the Company in
connection with a dispute involving rights under a 1982 license agreement for
toy store operations in the Middle East. Accordingly, the Company recorded a
provision of $60 during 1996, ($38 net of tax benefits, or $.14 cents per
share), representing all costs in connection with this matter. 

OTHER MATTERS 

On May 22, 1996, the Staff of the Federal Trade Commission (the "FTC") filed an
administrative complaint against the Company alleging that the Company is in
violation of Section 5 of the Federal Trade Commission Act for its practices
relating to warehouse clubs. The complaint alleges that the Company reached
understandings with various suppliers that such suppliers not sell to the clubs
the same items that they sell to the Company. The complaint also alleges that
the Company "facilitated understandings" among the manufacturers that such
manufacturers not sell to clubs. The complaint seeks an order that the Company
cease and desist from this practice. The matter was tried before an
administrative law judge in the period from March through May of 1997. On
September 30, 1997, the administrative law judge filed an Initial Decision
upholding the FTC's complaint against the Company. On October 13, 1998, the FTC
issued a final order and opinion upholding the FTC's complaint against the
Company.

The Company has appealed the FTC's decision to the United States Court of
Appeals for the Seventh Circuit.

After the filing of the FTC complaint, several class action suits were filed
against the Company in State courts in Alabama and California, alleging that the
Company has violated certain state competition laws as a consequence of the
behavior alleged in the FTC complaint. After the Initial Decision was handed
down, more than thirty purported class actions were filed in federal and state
courts in various jurisdictions alleging that the Company has violated the
federal antitrust laws as a consequence of the behavior alleged in the FTC
complaint. In addition, the attorneys general of forty-four states, the District
of Columbia and Puerto Rico have filed a suit against the Company in their
capacity as representatives of the consumers of their states, alleging that the
Company has violated federal and state antitrust laws as a consequence of the
behavior alleged in the FTC complaint. These suits seek damages in unspecified
amounts and other relief under state and/or federal law.

The Company believes that it has always acted fairly and in the best interests
of its customers and that both its policy and its conduct in connection with the
foregoing have been and are within the law. However, to avoid the cost and
uncertainty of protracted litigation the Company has reached an agreement in
principle to settle all of the class action and attorney general lawsuits in a
manner which will not have a material adverse effect on its financial condition,
results of operations or cash flow. The Company has accrued all anticipated
costs relating to this matter as of January 30, 1999.


Some of the most popular
electronic systems, video games
and computer software are
seem first at Toys "R" Us!

[Photo]


22

<PAGE>

REPORT OF MANAGEMENT

Responsibility for the integrity and objectivity of the financial information
presented in this Annual Report rests with the management of Toys"R"Us. The
accompanying financial statements have been prepared from accounting records
which management believes fairly and accurately reflect the operations and
financial position of the Company. Management has established a system of
internal controls to provide reasonable assurance that assets are maintained and
accounted for in accordance with its policies and that transactions are recorded
accurately on the Company's books and records.

The Company's comprehensive internal audit program provides for constant
evaluation of the adequacy of the adherence to management's established policies
and procedures. The Company has distributed to key employees its policies for
conducting business affairs in a lawful and ethical manner.

The Audit Committee of the Board of Directors, which is comprised solely of
outside directors, provides oversight to the financial reporting process through
periodic meetings with our independent auditors, internal auditors and
management.

The financial statements of the Company have been audited by Ernst & Young LLP,
independent auditors, in accordance with generally accepted auditing standards,
including a review of financial reporting matters and internal controls to the
extent necessary to express an opinion on the consolidated financial statements.

/s/ Robert C. Nakasone              /s/ Louis Lipschitz
-----------------------             ---------------------------
Robert C. Nakasone                  Louis Lipschitz
Chief Executive Officer             Executive Vice President
                                    and Chief Financial Officer

REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Toys"R"Us, Inc.

We have audited the accompanying consolidated balance sheets of Toys"R"Us, Inc.
and subsidiaries as of January 30, 1999 and January 31, 1998, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the three years in the period ended January 30, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Toys"R"Us, Inc.
and subsidiaries at January 30, 1999 and January 31, 1998, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended January 30, 1999, in conformity with generally accepted
accounting principles.

                                             Ernst & Young LLP

New York, New York
March 10, 1999


                                                                              23

<PAGE>

Directors and Officers

Directors
CHARLES LAZARUS
Chairman Emeritus of the Company

MICHAEL GOLDSTEIN
Chairman of the Board of the Company

ROBERT A. BERNHARD
Real Estate Developer

ROANN COSTIN
President, Reservoir Capital Management, Inc.

CALVIN HILL
Consultant

SHIRLEY STRUM KENNY
President, State University of
New York at Stony Brook

NORMAN S. MATTHEWS
Consultant

HOWARD W. MOORE
Consultant

ROBERT C. NAKASONE
Chief Executive Officer
of the Company

ARTHUR B. NEWMAN
Senior Managing Director,
Blackstone Group

Corporate and Administrative

ROBERT C. NAKASONE
Chief Executive Officer

LOUIS LIPSCHITZ
Executive Vice President
and Chief Financial Officer

MICHAEL G. SHANNON
Executive Vice President and
President U.S. Toy Stores

FRANCESCA L. BROCKETT
Senior Vice President -
Strategic Planning/Business Development

ROGER C. GASTON
Senior Vice President -
Human Resources

JOHN HOLOHAN
Senior Vice President -
Chief Information Officer

RAYMOND L. ARTHUR
Vice President - Corporate Controller

DAN BOOHER
Vice President -
Architecture and Construction

KRISTOPHER M. BROWN
Vice President - Distribution and Traffic

REBECCA A. CARUSO
Vice President -
Corporate Communications

MICHAEL J. CORRIGAN
Vice President -
Compensation and Benefits

RICHARD N. CUDRIN
Vice President -
Associate Relations

EILEEN C. GABRIEL
Vice President - Information Systems

ELIZABETH S. JORDAN
Vice President -
Organizational Development

JON W. KIMMINS
Vice President - Treasurer

DION C. ROONEY
Vice President - Systems Development

MICHAEL L. TUMOLO
Vice President - Counsel

PETER W. WEISS
Vice President - Taxes

ROBERT S. ZARRA
Vice President - Internal Audit

DENNIS J. BLOCK
Secretary
Partner-Cadwalader, Wickersham & Taft

Toys"R"Us United States

MICHAEL G. SHANNON
President

MICHAEL J. MADDEN
President - Store Operations

KEITH C. VAN BEEK
President -
Merchandising and Marketing

JAMES E. FELDT
Executive Vice President -
Merchandising

WARREN F. KORNBLUM
Senior Vice President -
Chief Marketing Officer

ROBERT J. WEINBERG
Senior Vice President -
General Merchandise Manager

JOEL D. ANDERSON
Vice President - Toys"R"Us Direct

DAVID M. BREWI
Vice President - World Leader

THOMAS F. DELUCA
Vice President - Imports, Product Development and Safety Assurance

BARBARA A. FITZGERALD
Vice President - People Development

PHILIP S. FOUSSEKIS
Vice President - Loss Prevention

ANDREW R. GATTO
Vice President -
Product Development

DANIEL D. HLAVATY
Vice President - Business Reengineering

JEREL G. HOLLENS
Vice President -
Merchandising Planning

MARIANITA HOWARD
Vice President -
Creative Services

FREDERICK L. HURLEY
Vice President - World Leader

JOSEPH J. LOMBARDI
Vice President - Controller

MITCHELL B. LOUKOTA
Vice President - World Leader

CHARLENE MADY
Vice President -
Area Merchandise Planning

GERALD S. PARKER
Vice President -
Customer Support and Administration

DAVID P. PICOT
Vice President - Real Estate

DEBRA M. ROOD
Vice President -
Toys"R"Us Direct Fulfillment

TIMOTHY J. SLADE
Vice President - Store Planning

WILLIAM A. STEPHENSON
Vice President -
Merchandise Planning and Allocation

JOHN P. SULLIVAN
Vice President - World Leader

GREGG TREADWAY
Vice President - C-3 Development

DENNIS J. WILLIAMS
Vice President - Sales

THOMAS A. DRUGAN
Regional Vice President - Midwest

HARVEY J. FINKEL
Regional Vice President - Northeast

TRUVILLUS HALL
Regional Vice President - Northwest

MICHAEL K. HEFFNER
Regional Vice President - Gulf States

SAMUEL M. MARTIN
Regional Vice President - West

JOHN J. PRAWLOCKI
Regional Vice President - Southeast

EDWARD F. SIEGLER
Regional Vice President - Mid-Atlantic

KEVIN VANDERGRIEND
Regional Vice President - Ohio Valley


24

<PAGE>

Toys"R"US International

GREGORY R. STALEY
President

BRUNO A. ROQUEPLO
Senior Vice President -
Finance and Administration

ERNEST V. SPERANZA
Senior Vice President - Marketing

JOAN W. DONOVAN
Vice President -
General Merchandise Manager

JEFF HANDLER
Vice President - Advertising

LARRY S. JOHNSON
Vice President - Franchise Markets

MICHAEL C. TAYLOR
Vice President - Franchising/Logistics

DAVID RURKA
Managing Director -
Toys"R"Us United Kingdom and 
Chairman of the European 
Management Board

JOHANNES DERCKS
President -
Toys"R"Us Central Europe

JACQUES LEFOLL
President -
Toys"R"Us France/Belgium

ROBERT F. MORAN
President - Toys "R" Us (Canada) Ltd.

JOHN SCHRYVER
Managing Director -
Toys"R"Us Australia

MANABU TAZAKI
President -
Toys"R"Us Japan

ANTONIO URCELAY
Managing Director -
Toys"R"Us Iberia

LARRY D. GARDNER
Vice President -
Toys"R"Us Asia

SCOTT W.K. CHEN*
General Manager -
Toys"R"Us Taiwan

JOE TANG*
General Manager -
Toys"R"Us Hong Kong

MICHAEL S.M. YEO*
General Manager -
Toys"R"Us Singapore

*Country Management


Kids"R"Us/Babies"R"Us*

RICHARD L. MARKEE
President -
Kids"R"Us and Babies"R"Us

JAMES G. PARROS
Senior Vice President -
Stores and Distribution Center Operations

MARTIN E. FOGELMAN
Vice President -
World Leader Juvenile Products

LAURA J. FREEMAN
Vice President - Divisional
Merchandise Manager

JONATHAN M. FRIEDMAN
Vice President - Chief Financial Officer -
Kids"R"Us and Babies"R"Us

JAMES L. EASTON
Vice President -
General Merchandise Manager

VINCENT A. SCARFONE
Vice President -
Human Resources

CHRISTOPHER M. SCHERM
Vice President -
Divisional Merchandise Manager

DAVID E. SCHOENBECK
Vice President -
Operations - Babies "R" Us

SANDEE A. SPRINGER
Vice President- Divisional
Merchandise Manager

DAVID S. WALKER
Vice President - Advertising

PAMELA B. WALLACK
Vice President - Product Development

*Kids"R"Us Officer, unless otherwise indicated.

Parents and children
discover amazing
ways to play and
learn in our
Learning Center.

[Photo]


                                                                              25
<PAGE>

Quarterly Financial Data and Market Information
TOYS"R"US, INC. AND SUBSIDIARIES

Quarterly Financial Data
(In millions except per share data)

The following table sets forth certain unaudited quarterly financial
information.

                                     First    Second      Third        Fourth
                                   Quarter   Quarter    Quarter       Quarter
--------------------------------------------------------------------------------
1998
--------------------------------------------------------------------------------
Net Sales                           $2,043    $2,020    $ 2,171        $4,936
Cost of Sales                        1,417     1,390      1,831         3,553
Net Earnings/(Loss)                     19        14       (475)(a)       310(b)
Basic Earnings/(Loss)
  per Share                         $  .07    $  .05    $ (1.85)       $ 1.23
Diluted Earnings/(Loss)
  per Share                         $  .07    $ .05     $ (1.85)       $ 1.23

1997
--------------------------------------------------------------------------------
Net Sales                           $1,924    $1,989    $ 2,142        $4,983
Cost of Sales                        1,326     1,355      1,455         3,574
Net Earnings                            29        37         46           378
Basic Earnings per Share            $ 0.10    $ 0.13    $  0.16        $ 1.33
Diluted Earnings per Share          $ 0.10    $ 0.13    $  0.16        $ 1.32

(a) Third quarter results include restructuring and other charges of $678
($495 net of tax benefits, or $1.86 per share). 
(b) Fourth quarter results include provisions for legal settlements of $20
($13 net of tax benefits, or $.05 per share).

Market Information

The Company's common stock is listed on the New York Stock Exchange. The
following table reflects the high and low prices (rounded to the nearest
one-sixteenth) based on New York Stock Exchange trading since February 1, 1997.

The Company has not paid any cash dividends, however, the Board of Directors of
the Company reviews this policy annually.

The Company had approximately 31,200 Stockholders of Record on March 9, 1999.

                                           High              Low
--------------------------------------------------------------------------------
1997  1st Quarter                          29 7/8            24 1/2
      2nd Quarter                          34 13/16          28 1/4
      3rd Quarter                          37 1/8            29 1/8
      4th Quarter                          35 7/16           24 7/8
--------------------------------------------------------------------------------
1998  1st Quarter                          30 7/8            25 7/8
      2nd Quarter                          29 1/2            22 5/16
      3rd Quarter                          23 13/16          15 5/8
      4th Quarter                          21 1/2            14 7/16
                                                     

Store Locations
Stores Across the United States

                                        Toys           Kids         Babies
--------------------------------------------------------------------------------
Alabama                                    8              1              2
Alaska                                     1             --             --
Arizona                                   11             --              2
Arkansas                                   4             --             --
California                                87             23              8
Colorado                                  11             --              2
Connecticut                               11              6             --
Delaware                                   2              1              1
Florida                                   47             10             10
Georgia                                   18              4              6
Hawaii                                     1             --             --
Idaho                                      2             --             --
Illinois                                  34             19              5
Indiana                                   13              7              2
Iowa                                       8              1             --
Kansas                                     5              1              1
Kentucky                                   8             --              1
Louisiana                                 11             --              1
Maine                                      2              1              1
Maryland                                  19              9              3
Massachusetts                             19              6              1
Michigan                                  25             13              5
Minnesota                                 12              2              1
Mississippi                                5             --             --
Missouri                                  13              5              3
Montana                                    1             --             --  
Nebraska                                   3              1             --
Nevada                                     4             --              2
New Hampshire                              5              2             --
New Jersey                                26             18              7
New Mexico                                 4             --             --
New York                                  46             23              3
North Carolina                            16              1              5
North Dakota                               1             --             --
Ohio                                      33             18              6
Oklahoma                                   5             --              1
Oregon                                     8             --              1
Pennsylvania                              33             15              3
Rhode Island                               1              1              1
South Carolina                             9             --              3
South Dakota                               2             --             --
Tennessee                                 14              2              4
Texas                                     54              9             13
Utah                                       6              3              1
Vermont                                    1             --             --
Virginia                                  22              7              7
Washington                                14             --              1
West Virginia                              5             --             --
Wisconsin                                 10              3             --
Puerto Rico                                4             --             --
--------------------------------------------------------------------------------
                                         704            212            113
================================================================================


TOYS"R"US International - 452
-----------------------------
Australia - 24
Austria - 8 
Belgium - 3
Canada - 64
Denmark - 10(a) 
France - 44 
Germany - 59 
Hong Kong - 5(a) 
Indonesia - 3(a)
Israel - 5(a) 
Japan - 76(b) 
Luxembourg - 1 
Malaysia - 5(a) 
Netherlands - 9(a)
Portugal - 6
Saudi Arabia - 3(a) 
Singapore - 4 
South Africa - 8(a) 
Spain - 29
Sweden - 5 
Switzerland - 5 
Taiwan - 6(a) 
Turkey - 5(a) 
United Arab
  Emirates - 4(a)
United Kingdom - 61

(a) Franchise or joint venture.
(b) 80% owned


26

<PAGE>

Corporate Data and Citizenship
TOYS"R"US, INC. AND SUBSIDIARIES

Annual Meeting

The Annual Meeting of the Stockholders
of Toys"R"Us will be held at the
Westin Hotel Atlanta North at Perimeter,
7 Concourse Parkway
in Atlanta, Georgia, on
June 9, 1999 at 10:00 A.M.

The Offices of The
Company are Located at
461 From Road
Paramus, New Jersey 07652
Telephone: 201-262-7800

225 Summit Avenue
Montvale, New Jersey 07645
Telephone:  201-802-5000

General Counsel
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10036

Independent Auditors
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019

Registrar and Transfer Agent
American Stock Transfer and
Trust Company
40 Wall Street,
New York, New York 10005
Telephone: 718-921-8200

Common Stock Listed
New York Stock Exchange, Symbol: TOY

Stockholder Information

The Company will supply to any owner of Common Stock, upon written request to
Mr. Louis Lipschitz of the Company at the above address and without charge, a
copy of the Annual Report on Form 10-K for the year ended January 30, 1999,
which has been filed with the Securities and Exchange Commission. 

Stockholder information, including quarterly earnings and other corporate news
releases, can be obtained by calling 800-785-TOYS, or at our web site on the
internet at www.toysrus.com

Significant news releases are anticipated to be available as
follows: 

Call after...     For the following... 

May 17, 1999      1st Quarter Results
Aug. 16, 1999     2nd Quarter Results 
Nov. 15, 1999     3rd Quarter Results 
Jan. 6, 2000      Holiday Sales Results 
Mar. 8, 2000      1999 Results 

Corporate Citizenship 

Toys"R"Us maintains a company-wide giving program focused on improving the
health care needs of children by supporting many national and regional
children's health care organizations. The Counsel on Economic Priority awarded
Toys"R"Us the Pioneer Award in Global Ethics. This award was the direct result
of the implementation of our Code of Conduct for suppliers which outlines the
Company's position against child labor and unsafe working conditions. In order
for a vendor's product to be sold in any of our stores, they must comply with
our Code of Conduct. If you would like to receive more information on Toys"R"Us'
corporate citizenship please write to Mr. Roger Gaston of the Company at the
Company's address.

Visit us on the internet at www.toysrus.com.

Undoubtedly,
the brand
kids love
most!

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                                  TOYS "R" US
                                  KIDS "R" US
                                 BABIES "R" US