<PAGE>



Toys "R" Us Annual Report
Year Ended February 1, 1997

A New Generation


[Photograph of a store in 1978]

[Photograph of a store in 1996]




<PAGE>
<PAGE>

TABLE OF CONTENTS

Store Locations and
Financial Highlights ..............     page 2
Letter to Our Stockholders ........     page 4
Managements Discussion and
Analysis-Results of Operations
and Financial Condition ...........     page 12
Financial Statements ..............     page 14
Report of Management 
and Report of Independent
Auditors ..........................     page 23
Directors and Officers ............     page 24
Quarterly Financial Data 
and Market Information ............     page 26
Corporate Data ....................     page 27 


STORE LOCATIONS

TOYS"R"US UNITED STATES - 682 LOCATIONS
Alabama - 7
Alaska - 1
Arizona - 11
Arkansas - 4
California - 84
Colorado - 11
Connecticut - 11
Delaware - 2
Florida - 44
Georgia - 18
Hawaii - 1
Idaho - 2
Illinois - 34
Indiana - 12
Iowa - 8
Kansas - 4
Kentucky - 8
Louisiana - 11
Maine - 2
Maryland - 19
Massachusetts - 19
Michigan - 25
Minnesota - 12
Mississippi - 5
Missouri - 12
Montana - 1
Nebraska - 3
Nevada - 4
New Hampshire - 5
New Jersey - 24*
New Mexico - 4
New York - 45
North Carolina - 16
North Dakota - 1
Ohio - 31
Oklahoma - 5
Oregon - 8
Pennsylvania - 31
Rhode Island - 1
South Carolina - 8
South Dakota - 2
Tennessee - 14
Texas - 51
Utah - 5
Virginia - 22*
Vermont - 1
Washington - 14
West Virginia - 4
Wisconsin - 11

Puerto Rico - 4
*Includes a KidsWorld location.

TOYS"R"US INTERNATIONAL - 396 LOCATIONS
Australia - 22
Austria - 8
Belgium - 3
Canada - 61


<PAGE>
Denmark - 9(a)
France - 41
Germany - 58
Hong Kong - 4(a)
Indonesia - 2(a)
Israel - 3(a)
Italy - 5(a)
Japan - 51(b)
Luxembourg - 1
Malaysia - 4(a)
Netherlands - 9(a)
Portugal - 3
Saudi Arabia - 1(a)
Singapore - 4
South Africa - 6(a)
Spain - 28
Sweden - 3(a)
Switzerland - 4
Taiwan - 6(a)
Turkey - 1(a)
United Arab Emirates - 3(a)
United Kingdom - 56

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


KIDS"R"US UNITED STATES - 212 LOCATIONS
Alabama - 1
California - 24
Connecticut - 6
Delaware - 1
Florida - 10
Georgia - 4
Illinois - 20
Indiana - 7
Iowa - 1
Kansas - 1
Maine - 1
Maryland - 9
Massachusetts - 6
Michigan - 13
Minnesota - 2
Missouri - 5
Nebraska - 1
New Hampshire - 2
New Jersey - 18
New York - 22
North Carolina - 1
Ohio - 18
Pennsylvania - 14
Rhode Island - 1
Tennessee - 2
Texas - 9
Utah - 3
Virginia - 7
Wisconsin - 3


BABIES"R"US UNITED STATES - 82 LOCATIONS
Alabama - 2
Arizona - 1
California - 2
Colorado - 2
Florida - 10
Georgia - 7
Illinois - 4
Indiana - 2
Kansas - 1
Kentucky - 1
Louisiana - 1
Maryland - 3
Michigan - 1 
Minnesota - 1
Missouri - 2
New Jersey - 3
New York - 1
North Carolina - 5
Ohio - 5
Oklahoma - 1
Pennsylvania - 2
South Carolina - 3
Tennessee - 4
Texas - 12
Virginia - 6


                                       2


<PAGE>
<PAGE>



FINANCIAL HIGHLIGHTS
--------------------
TOYS"R"US, INC. AND SUBSIDIARIES


<TABLE>
<CAPTION>
(Dollars in millions except per share data)                                                                        Fiscal Year Ended
____________________________________________________________________________________________________________________________________
                                                      Feb.1,  Feb.3, Jan.28, Jan.29, Jan.30,  Feb.1,  Feb.2, Jan.28, Jan.29, Jan.31,
                                                       1997*   1996*   1995    1994    1993    1992    1991    1990    1989    1988 
                                                       ----    ----    ----    ----    ----    ----    ----    ----    ----    ---- 
<S>                                                   <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C> 
OPERATIONS:

  Net Sales ........................................  $9,932  $9,427  $8,746  $7,946  $7,169  $6,124  $5,510  $4,788  $4,000  $3,137
  Net Earnings .....................................     427     148     532     483     438     340     326     321     268     204
  Earnings Per Share ...............................    1.54     .53    1.85    1.63    1.47    1.15    1.11    1.09     .91     .69


FINANCIAL POSITION AT YEAR END:

  Working Capital ..................................     619     326     484     633     797     328     177     238     255     225
  Real Estate-Net ..................................   2,411   2,336   2,271   2,036   1,877   1,751   1,433   1,142     952     762
  Total  Assets ....................................   8,023   6,738   6,571   6,150   5,323   4,583   3,582   3,075   2,555   2,027
  Long-Term Obligations ............................     909     827     785     724     671     391     195     173     174     177
  Stockholders' Equity .............................   4,191   3,432   3,429   3,148   2,889   2,426   2,046   1,705   1,424   1,135


NUMBER OF STORES AT YEAR END:

  Toys"R"Us - United States ........................     680     653     618     581     540     497     451     404     358     313
  Toys"R"Us - International ........................     396     337     293     234     167     126      97      74      52      37
  Kids"R"Us - United States ........................     212     213     204     217     211     189     164     137     112      74
  Babies"R"Us - United States ......................      82      --      --      --      --      --      --      --      --      --
  KidsWorld - United States ........................       2      --      --      --      --      --      --      --      --      --
</TABLE>


* After  other charges  as described in the Notes to the Consolidated  Financial
Statements.


                       CONSOLIDATED NET SALES (billions)
                           (GRAPHIC MATERIAL OMITTED)

Fiscal Year                   1987           3.1
                              1988           4.0
                              1989           4.8
                              1990           5.5
                              1991           6.1
                              1992           7.2
                              1993           7.9
                              1994           8.7
                              1995           9.4
                              1996           9.9


                                        3


<PAGE>
<PAGE>


TO OUR STOCKHOLDERS

INTRODUCTION

     In our annual report for the year ended February 3, 1980, our 85 toy stores
in the United States reported net sales approaching $500 million.  In our letter
to our stockholders that year, we stated, "Much of this annual report is devoted
to  financial  information.  The true  heart of our  business,  however,  is our
customer". During the next seventeen years, we grew our business to 1,372 stores
in 27  countries,  with  sales  approaching  $10  billion.  Delivering  the best
selection at great prices, we became the biggest toy store in town.

In  1997,  just  as in  1980,  the heart of  our business is  the  customer.  In
last year's  annual  report,  we said that one of the major reasons we undertook
our restructuring  program was in response to our customers'  feedback.  In this
letter,  we  will  describe  the  many  initiatives  we have  completed  and are
undertaking  to improve our  customers'  shopping  experience.  By continuing to
service the customer first and foremost, we will continue to grow profitably for
you, our  stockholders.  We are confident that our  ever-increasing  emphasis on
customer  service  will  enhance  our  reputation  as  the  finest  retailer  of
children's products in the world.


(Photo of  Michael  Goldstein,  Vice  Chairman  and  Chief Executive Officer and
Robert C. Nakasone, President and Chief Operating Officer)


1996 FINANCIAL HIGHLIGHTS

Our 1996 sales grew to $9.9 billion, a 5% percent increase over the $9.4 billion
reported in the prior year.  This is our 18th  consecutive  year of record sales
since Toys"R"Us became a public company.  In 1996,  operating earnings more than
doubled from the prior year and net earnings  increased to $427.4 million versus
$148.1  million in 1995.  Earnings  per share  increased to $1.54 as compared to
$.53 a year ago.  Our results for both the 1996 and 1995 years were  impacted by
special  charges.  In 1996, a $37.8  million after tax charge was recorded for a
judgement  rendered  against the Company  related to a dispute  involving a 1982
franchise  agreement for toy store  operations in the Middle East. In 1995,  the
Company underwent a strategic restructuring program and, as a result, incurred a
$269.1  million after tax charge.  Excluding  the impact of these  non-recurring
charges,  our 1996 net  earnings  increased  12% to $465.2  million  from $417.2
million and earnings per share increased to $1.68 from $1.51 in the prior year.

1996 saw the successful  implementation of our worldwide  restructuring program.
The most important initiative,  our strategic inventory repositioning,  has been
completed.  We have  significantly  streamlined  our  assortment and reduced the
number  of items we  carry  in our  stores  by more  than  20%.  This  inventory
repositioning  program  was  initiated  because  the  breadth of our  assortment
sometimes made our stores difficult to shop.  Listening to our customers enabled
us to enhance our  selection  advantage  with larger  facings and more  dramatic
presentations  of  desired  items.


The other  significant  elements of our restructuring  program,  including store
closings   and  the   consolidation   of  certain   distribution   centers   and
administrative  facilities,  are  substantially  complete.   Reducing  our  cost
structure  allows us to bring the right product to our stores more  efficiently.
Finally,  the  restructuring has had a positive  financial  impact.  Our balance
sheet is in excellent condition,  as demonstrated by the significant decrease in
debt, net of  investments,  and by our improved  working capital and strong cash
flow.


We   are   pleased  to  report  that  all of our  divisions:  Toys"R"Us  -  USA,
International  and Kids"R"Us,  experienced  comparable store sales increases and
improved operating earnings for 1996. While the 1996 holiday selling season fell
short of our  expectations - due primarily to a shortage of hot selling products
like Tickle Me Elmo and Nintendo 64, as well as a limited selection of new video
game software titles - we are pleased to report that even at this early stage in
1997,  the  demand  for new  products  is very  strong,  and toy and video  game
manufacturers  are geared up to meet that need. We fully expect that as a result
of our traditional strength as the place to go for the best selection,  in stock
position  and  price,  we will be able to meet the  customers' expectations  and
generate increased sales and earnings for you, our stockholders.




                 NET SALES - INTERNATIONAL DIVISION (billions)
                           (GRAPHIC MATERIAL OMITTED)

Fiscal Year                   1987           0.2
                              1988           0.4
                              1989           0.5
                              1990           0.8
                              1991           1.0
                              1992           1.4
                              1993           1.7
                              1994           2.1
                              1995           2.6
                              1996           2.8




                      CONSOLIDATED TOTAL ASSETS (billions)
                           (GRAPHIC MATERIAL OMITTED)

Fiscal Year                   1987           2.0
                              1988           2.6
                              1989           3.1
                              1990           3.6
                              1991           4.6
                              1992           5.3
                              1993           6.1
                              1994           6.6
                              1995           6.7
                              1996           8.0



                                       4


<PAGE>
<PAGE>


OUR CUSTOMER FOCUS

Last year, we told you that we would unveil a revolutionary new toy store design
in 1996 with the goal of  creating  a  shopping  experience  like no  other.  We
completed 13 of our Concept 2000 stores in 1996 with outstanding  results,  both
in terms of sales and customer  satisfaction.  The shopping  environment we have
created is completely  different  from the Toys"R"Us of yesterday.  At the grand
opening of our first Concept 2000 store in Raritan, New Jersey, we overheard one
of our  customers  say  people are going to shop for hours in this  store.  As a
retailer, this is mighty praise indeed! In 1997, the Concept 2000 format will be
expanded  as we will  remodel  57 stores  and all new toy  stores in the  United
States will be built using this format.


In 1996,  Toys"R"Us  entered the  superstore  arena with the launch of Toys"R"Us
KidsWorld,  our 90,000  square foot  prototype  encompassing  all of our formats
Toys"R"Us, Kids"R"Us and Babies"R"Us - under one roof. We know our customers are
excited by this concept. Our two day grand opening in Elizabeth, New Jersey drew
such  enormous  crowds that car traffic  backed up the New Jersey  Turnpike  for
miles. In our proud history,  we have had many outstanding grand opening events,
but the customer reaction to KidsWorld has been extraordinary. We are especially
pleased with our licensed  shops which  provide our  customers  with food,  fun,
footwear and  photographs.  Our market research  indicates the average  customer
stays in our KidsWorld  store for well over an hour.  Our goal of creating a new
type of destination store for kids has been achieved.


Our customer  focus has been  extended to the existing base of our toy stores as
well.  In 1996,  we rolled out 200 customer  information  centers,  with more to
follow.  These provide a fixed single  location in the center of the store where
help can be received and questions can be answered. Due to the wide selection of
merchandise  we  carry,  as  well  as  the  shortage  of  hot  product  we  have
experienced,  our customer  information  center is  essential  in improving  our
overall  customer  service.  Through the use of our  automated  store  inventory
system,  our customer  information  center  enables us to  communicate  with our
customer as never before.


And  what  better  way  to  communicate  with  our  customers  than  have   them
communicate  with each other!  While our Baby  Registry has been  available  all
year, we made registering  even easier in 1996. We successfully  tested in-store
radio  frequency  technology  and  hand-held  scanners  and  we'll use them to a
greater extent in 1997. With this technology,  our customers can now simply scan
their desired  selections  for automatic  registration  into our  computers.  We
complemented  our Baby  Registry  this  year by  testing a Gift  Registry  where
children can create a wish list for their families and friends,  no matter where
they live in the United  States.  This Gift  Registry was tested in three of our
markets  this year and will be rolled out to the  entire  country  beginning  in
1997. Not only do our Registry programs make shopping easier, but they eliminate
the time  consuming  process of  returning  or  exchanging  duplicate  items and
unwanted gifts.


                                       5



<PAGE>
<PAGE>


Our revolving feature shop area continues to be a strong customer draw. While we
are proud of our 1996 Toy Story, Barbie, Nerf and Hunchback of Notre Dame shops,
we were  thrilled  by our  customers  response to our Video Test Drive Shop last
summer.  We were  able  to  provide  first-hand  playing  experience  on the new
hardware  platforms so that our customers could make educated  decisions  before
making this significant  purchase.  We believe there is no retailer in the world
as committed to the video game  business as  Toys"R"Us.  In order to provide our
customers  with better in stock  levels of high demand video game  products,  as
well as  computer  software  and VHS tapes,  we will open our  state-of  the-art
centralized  piece pick operation in 1997.  Centralized piece pick will allow us
to distribute new titles across our chain faster than ever before.  In addition,
we can provide quicker inventory replenishment for these important categories.


Improving our in-stock levels at Toys"R"Us is an important element in our desire
to improve our customer service. In 1996, one third of our chain installed a new
sales floor  replenishment tool which we call the Sales Improvement System. With
the use of hand-held radio frequency technology, our associates can pinpoint the
exact  location of  merchandise,  not only on the sales  floor,  but also in our
stockrooms.  This will enable us to quickly  identify  out of stock or low stock
positions  and allow us to bring hot  product to the sales  floor  quicker  than
ever.




                  NUMBER OF COUNTRIES - INTERNATIONAL DIVISION
                           (GRAPHIC MATERIAL OMITTED)


Fiscal Year                   1987            5.0
                              1988            6.0
                              1989            8.0
                              1990            8.0
                              1991           10.0
                              1992           11.0
                              1993           16.0
                              1994           20.0
                              1995           21.0
                              1996           26.0





                           NUMBER OF STORES WORLDWIDE
                           (GRAPHIC MATERIAL OMITTED)


Fiscal Year                   1987             424.0
                              1988             522.0
                              1989             615.0
                              1990             712.0
                              1991             812.0
                              1992             918.0
                              1993           1,032.0
                              1994           1,115.0
                              1995           1,203.0
                              1996           1,372.0



BABIES"R"US


In 1996,  our newest  division,  Babies"R"Us,  was born. We opened 6 Babies"R"Us
stores,  utilizing  many  elements  from  our  Concept  2000  store  design  and
capitalizing  on our  Toys"R"Us and Kids"R"Us  systems and  infrastructure.  Our
merger with Baby  Superstore on February 3, 1997  immediately  makes Toys"R"Us a
stronger player in the juvenile  marketplace by adding 76 existing stores to the
Babies"R"Us  family.  We have long  admired the  competitive  spirit of the Baby
Superstore associates and we recognize the value that they bring to Toys"R"Us in
terms of their ability to provide  outstanding  customer service.  Combining the
successful Baby Superstore company with the financial  resources,  sophisticated
distribution  network and operational know-how of Toys"R"Us makes us the premier
retailer of juvenile products in the United States.


                                       6



<PAGE>
<PAGE>


OUTLOOK

In  1996,  we  added  104  stores:  30 toy  stores  in  the  United  States,  59
international toy stores, of which 27 were franchise stores, including our first
franchise stores in Indonesia,  Italy, Saudi Arabia, South Africa and Turkey, as
well as 7 Kids"R"Us  stores,  6 Babies"R"Us  stores and 2 KidsWorld  stores.  In
1997, we intend to add  approximately  105 stores: 25 USA toy stores in addition
to the 57 Concept  2000  remodels,  40  international  toy stores  including  15
franchise  stores, 5 Kids"R"Us  stores and 20 Babies"R"Us  stores in addition to
converting the 76 Baby Superstore locations.

In terms of product,  1997  promises to be an exciting year for  Toys"R"Us.  The
video game  business  remains  strong and the  introduction  of Nintendo 64 into
Europe should continue the excitement in another part of the world. In addition,
the recent price reductions for Nintendo 64 and Sony Playstation should fuel the
video game momentum not only in video hardware but software as well.

Licensed toy product related to movie releases has historically  been successful
for Toys"R"Us.  Typically,  a great movie license generates sales for us in many
categories  such as action figures,  dolls,  plush,  party goods,  and board and
video games to name a few. This year there will be more children-oriented movies
with related toy product  than at any other point in our  history.  These movies
include the Star Wars Trilogy and Little  Mermaid  re-releases,  The Lost World:
Jurassic Park,  Batman and Robin,  Hercules and  Anastasia.  We will be ready to
supply our customers with exciting products related to all of these movies.


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 childrens
health care organizations.

The  Counsel  on  Economic  Priority  recently  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 Roger Gaston at the address noted on the back inside
cover.


HUMAN RESOURCES

All of these  initiatives are made possible by the excellent  management team we
have assembled here at Toys"R"Us.  To prepare  ourselves for 1997 and beyond, we
have made the following important executive announcements:


ADDITIONS:

Roger C. Gaston
Senior Vice President - Human Resources

Mitchell Loukota
Vice President - Divisional Merchandise Manager
Toys"R"Us

Gregg Treadway
General Manager
Toys"R"Us

Antonio Urcelay
Managing Director - Toys"R"Us Iberia

David S. Walker
Vice President - Advertising
Kids"R"Us


PROMOTIONS:


Corporate & Toys"R"Us, USA

Robert J. Weinberg
Senior Vice President -
General Merchandise Manager



<PAGE>
David Brewi
Vice President - Divisional Merchandise Manager

Thomas DeLuca
Vice President - Imports, Product Development and
Safety Assurance

Truvillus Hall
General Manager

Charlene Mady
Vice President - Area Merchandise Planning

Gerald S. Parker
Vice President - Regional Operations

Timothy J. Slade
Vice President - Transportation and Traffic

William A. Stephenson
Vice President -
Merchandise Planning and Allocation

Kevin VanderGriend
General Manager

Robert S. Zarra
Vice President -
Internal Audit


Toys"R"Us, International

Larry D. Gardner
Vice President - Toys"R"Us Asia

Larry S. Johnson
Vice President - Franchise Markets

Michael C. Taylor
Vice President - Logistics


Kids"R"Us & Babies"R"Us

William Farrell
Vice President - Physical Distribution,
Kids"R"Us

Christopher M. Scherm
Vice President -
Divisional Merchandise Manager, Kids"R"Us

David E. Schoenbeck
Vice President - Operations, Babies"R"Us


We  would  like  to thank  Milton  Gould and  Harold Wit, who have served on our
Board of Directors since we became a public company in 1978, for their guidance,
counsel  and  contributions,  in helping  make  Toys"R"Us  the  world's  premier
retailer of children's products. We extend to them our heartfelt thanks and best
wishes for  continued  success,  health and  prosperity  as they retire from our
Board of Directors.


SUMMARY

We hope you are excited about all of the customer  initiatives we will implement
in  1997.  We  recognize  our  need  for  change  and we are  well on our way to
implementing  our strategic  plan. We thank our associates  throughout the world
who are advancing our mission to grow our business and service our customer.

Yesterday,  today and, most importantly,  tomorrow our customers will remain the
true heart of our business. Listening to our customers over the last two decades
has made us strong. Listening harder to each and every one of our customers will
make us even stronger.

We look  forward to  impressing  our  customers  with  outstanding  service  and
impressing you, our stockholders, with outstanding  results - And along the way,
making children all over the world want to visit our stores again and again.

Sincerely,

/s/ Michael Goldstein
Vice Chairman and Chief Executive Officer

/s/ Robert C. Nakasone
President and Chief Operating Officer


March 24, 1997


                                       7



<PAGE>
<PAGE>


A NEW GENERATION

Toys"R"Us is the worlds premier retailer of children's  products  bringing toys,
apparel, baby needs and much more to children (and their parents, too!)


BUILDING OUR BUSINESS WITH CUSTOMER SERVICE

Today's  highly  competitive  retail environment  constantly  challenges  us  to
find more ways to distinguish the Toys"R"Us shopping experience.  For the savvy,
value-conscious  consumer of the 90s,  well-stocked  shelves,  great  prices and
sales  promotions  are  expected  from  every  retail  store.  There  has  to be
"something  more..."  In response to this,  we have been  placing  more and more
emphasis on customer service. Throughout 1996, a number of opportunities enabled
us to show our customers that we understand their needs, and that we are working
towards  providing  the best service  possible  everyday...  at every  Toys"R"Us
store.

(Photographs  of Toys "R" Us' growth  from  1978 through 1996)

                                       8


<PAGE>
<PAGE>



CONCEPT 2000:

AND THE ADVENT OF CUSTOMER-FRIENDLY STORE DESIGN
 
In  1996, we  unveiled  thirteen  stores  with  the innovative  store format  we
call  Concept  2000  -  combining  the  ultimate  in  shopping  convenience  and
aesthetics. Wider aisles, color-coded merchandise displays,  attractive signage,
specialty  areas for video  games and  popular  toys,  animated  icons and other
visually stimulating features were introduced to entertain and motivate children
and parents as they shop.  Within our Concept 2000 and regular Toys"R"Us stores,
we also enhanced service at our Customer Information Centers.  Customers can now
count on the  assistance of trained  employees  who are able to access  computer
screens and identify product  availability  within our stores. In our Islands of
Service  program,  we have sales  assistants who are subject  experts in various
categories to help customers answer  product-specific  questions and explain key
product features.

We   have   successfully   made   our   definition  of  Customer  Service   more
expansive.  Whether  it is by giving our  shoppers  personalized  attention  and
assistance,  promoting  key services  that enhance the shopping  experience,  or
simply by providing  them with a pleasant  environment in which to shop, we work
to ensure customer satisfaction.


WHAT CUSTOMERS ARE SAYING ABOUT CONCEPT 2000:

"Walking into the new store,  I was blown away by how much it has  changed..."

"It was so much easier to find what I was looking  for..."

"I was impressed by the merchandise displays and selection..."

"It was a pleasure to shop here because the store is so bright and colorful..."

"Wow!"



                                       9



<PAGE>
<PAGE>


TOYS"R"US:

SPECIAL PROGRAMS AND NEW INITIATIVES

A  welcome  convenience  for  parents-to-be,  the  Toys"R"Us Baby Registry  lets
friends and family  members  find the right gifts for new parents  with ease and
confidence.  After a simple  registration process,  parents-to-be can make their
selection  from any of the products in the store.  With its focus on gift-giving
for  baby,  this  service  shows our  customers  that we have  thought  of every
shopping benefit!

Another  new  service  coming  soon  is the Gift  Registry.  Kids simply sign up
and create  their own wish list with the toys they  really  want for  birthdays,
holidays and special  occasions.  Gift-givers will be able to choose the perfect
gift every time! The Gift Registry will be rolled out to all stores beginning in
1997. We're exploring  customer service opportunities on the Internet,  too! Our
new  website  (www.toysrus.com)  provides  fun for the kids , and gives  parents
direct access to store and product information instantly!


(Photograph of the new KidsWorld)


KIDSWORLD: TOTAL ONE-STOP SHOPPING

The  two  KidsWorld  stores  that opened  in  1996  showcased  the very  best of
one-stop  shopping and  customer  service.  Shoppers  came for the full range of
advantages from Toys"R"Us, Kids"R"Us and Babies"R"Us, plus other family-friendly
attractions such as Kids Footlocker,  Focus Pocus (a photo studio), Cartoon Cuts
(a hair salon),  Jeepers Junior (a restaurant),  Fuzziwigs  Candy Factory,  plus
arcade  games and  rides.  Coming to  KidsWorld  means more than just a shopping
trip. It's a real family event!


                                       10


<PAGE>
<PAGE>


BABIES"R"US: DELIVERING NEW OPPORTUNITIES FOR SUCCESS

There  are  great expectations  for  the  newest arrival in the "R"Us family. In
1996, Babies"R"Us  successfully opened six bright, spacious new stores (designed
after the Concept 2000 model) that showcase total  one-stop  shopping and expert
customer  service.  The recent merger with the Baby Superstore chain in February
1997 has quickly  catapulted  Babies"R"Us  into the premier retailer of juvenile
products in the country! Customers can expect advantages like an amazing product
selection,  everyday low prices, and the popular no-hassle returns policy. Other
customer-friendly  services include The Baby Registry that makes it easy for new
parents to choose the gifts they want from  friends and family,  and the Special
Orders desk where  customers can order  merchandise in specific styles or colors
not currently  available in the store. Our sales associates are expertly trained
for customer interaction through classes, product seminars, videos and a regular
product information  newsletter.  Expectant parents and gift-givers now have the
ideal place to shop for everything for baby!


INTERNATIONAL: HIGHLIGHTS FROM AROUND THE WORLD

Fifty-nine  international  Toys"R"Us  stores  opened in 1996,  demonstrating our
continuing  growth as a global  retailer.  Franchise  operations  in  Indonesia,
Italy, Saudi Arabia,  South Africa,  and Turkey bring our current  international
presence to nearly 400 stores in 26 countries.  Milestones for the year included
the opening of our 50th store in Japan,  and the celebration of our 10th year in
Hong Kong.  As the  Toys"R"Us  world gets  bigger and better,  new and  exciting
opportunities abound for strengthening relationships with all our customers!


                                       11


<PAGE>
<PAGE>


MANAGEMENTS DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS AND FINANCIAL CONDITION


RESULTS OF OPERATIONS*

The  Company   posted   its  18th  consecutive   record  sales  year  in   1996,
reporting  sales of $9.9 billion.  Sales increased by 5.4% in 1996, 7.8% in 1995
and 10.1% in 1994.  The sales growth is primarily  attributable to the Company's
continued store expansion and the increase in comparable  U.S.A. toy store sales
of 2% in 1996. The Company opened 102 new U.S.A. toy stores,  163  international
toy stores, including franchise and joint venture stores, 22 children's clothing
stores, 6 baby specialty stores and 2 superstores  during the three year period.
Comparable U.S.A. toy store sales decreased 2% in 1995 and increased 2% in 1994.

Cost of  sales  as  a  percentage  of  sales  decreased  to  69.4% in 1996  from
69.9%  in 1995  primarily  due to an  improved  markup  on basic  toy  products,
partially  offset  by the  strengthening  of the  lower  margin  video  hardware
business. Cost of sales as a percentage of sales increased in 1995 from 68.7% in
1994  primarily  due  to an  intensively  competitive  retail  environment,  the
Company's   aggressive   pricing  strategy  and  an  unfavorable  shift  in  the
merchandise mix.

Selling,  advertising,  general  and  administrative  expenses as  a  percentage
of sales were 20.3% in 1996,  20.1% in 1995 and 19.0% in 1994.  The increases in
1996 and 1995 were primarily due to heavier advertising and promotional efforts,
as well as the Company's increased emphasis on customer service.

The  Company's 1996 results  were impacted  by a charge  of $59.5 million ($37.8
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.  Although the arbitration  award
was recently  confirmed in the District Courts,  the Company has filed an appeal
with the United States Court of Appeals for the Second Circuit.

The Company's 1995 results were  impacted by charges of $396.6  million  ($269.1
million,  net of tax  benefits  or $.98  cents  per  share) to  restructure  its
worldwide  operations  and to  early  adopt  FAS  No.  121, "Accounting  for the
Impairment  of  Long-Lived  Assets  and  Long-Lived  Assets to be Disposed  Of."
Elements of the  restructuring  plan are described below and in the notes to the
consolidated  financial statements and consisted of certain asset write offs and
contractual obligations, primarily in the United States and Europe.

In  1996,  the  Company  substantially  completed   its  restructuring   program
action plan,  including the closing of 3 Toys"R"Us and 7 Kids"R"Us stores in the
United  States,  the  consolidation  of  3  distribution   centers  and  various
administrative  facilities in the United States and Europe and,  pending certain
regulatory  approvals,  the franchising of 9 toy stores in the Netherlands.  The
Company  also  successfully  completed  the  most  important  component  of  the
restructuring program, its strategic inventory repositioning initiative designed
to  streamline  the  merchandise  assortment  in its toy stores and  enhance its
selection advantage.  The Company has reduced the number of items carried in its
toy stores by more than 20%.

At  February  1,  1997,  the  Company   had   approximately   $90   million   of
liabilities  remaining  for its  restructuring  program  primarily  relating  to
long-term lease  obligations and other  commitments.  The Company believes these
reserves are adequate to complete the restructuring program.

Interest  expense  decreased by 4.5% in  1996  as  compared  to  1995  primarily
due to the Company's improved cash flow as a result of increased  earnings,  the
benefits from its worldwide  restructuring  program and a $325.4  million medium
term  financing  which  replaced  borrowings  carrying  higher  interest  rates.
Interest expense  increased in 1995 as compared to 1994 due to increased average
borrowings  and a change  in the mix of  borrowings  and  interest  rates  among
countries.

The  Company's effective  tax  rate  was 36.5%,  44.2% and 37.0% in  1996,  1995
and 1994, respectively.  The higher effective tax rate in 1995 was primarily due
to the restructuring of its worldwide operations.

The  Company  believes  that  its  risks  attendant  to foreign  operations  are
minimal,  as the  countries  in which it owns  assets  and  operates  stores are
politically  stable.  The Company's foreign exchange risk management  objectives
are to stabilize cash flow from the effect of foreign currency fluctuations. The
Company will, whenever practical, offset local investments in foreign currencies
with borrowings  denominated in the same currency.  The Company also enters into
forward foreign exchange  contracts or purchases  options to eliminate  specific
transaction currency risk.


*References to 1996,  1995,  and 1994  are  for  the  52 weeks ended February 1,
1997, 53 weeks ended February 3, 1996 and the 52 weeks ended January 28, 1995.


                                       12



<PAGE>
<PAGE>



International  sales  were  unfavorably  impacted  by  the  translation of local
currency results into U.S. dollars by approximately $150 million in 1996 and was
favorably  impacted by  approximately  $140  million and $90 million in 1995 and
1994, 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 AND CAPITAL RESOURCES**

The Company's impressive financial position is evidenced by the liquidity of its
assets and its strong cash flow.

The  Company's newest  division,  Babies"R"Us  opened  its  first  6  stores  in
1996. The Company  accelerated  the growth of this division with the acquisition
of Baby  Superstore,  Inc. on February 3, 1997 for 13 million treasury shares of
the  Company's common  stock  valued  at  approximately  $376.0  million.   This
acquisition  has been  accounted for as a purchase at February 1, 1997,  and the
excess of  purchase  price  over net  assets  acquired  in the  amount of $365.0
million has been recorded as goodwill and will be amortized over 40 years.

Baby  Superstore,  with  76  stores  primarily  in  the  southeast  and  midwest
United States, was a leading retailer of baby and young childrens products.  The
Company plans to operate these stores under its  Babies"R"Us  format,  utilizing
its Toys"R"Us and Kids"R"Us  infrastructure  to leverage its combined  financial
and operational strengths.

The Company's cash  and  cash  equivalents  have  increased to $760.9 million at
February 1, 1997 from  $202.7  million at  February  3, 1996.  This  increase is
primarily attributable to the following factors:  increased net earnings, due in
part to the  benefits of the Company's worldwide  restructuring  program,  $67.5
million of cash received with the acquisition of Baby Superstore and an increase
in net cash provided by financing activities of $112.1 million.

The Company's working  capital  improved to $618.9  million at February 1, 1997,
from  $326.1  million at February 3, 1996 due in part to the closing of a medium
term $325.4 million  financing in 1996, the proceeds of which reduced short term
debt.

The long-term debt, net of current  maturities,  to equity  percentage was
21.7% at February 1, 1997 as compared to 24.1% at February 3, 1996.

In  1997,  the  Company  plans  to  open  approximately  25  toy  stores in  the
United  States  utilizing  the new Concept  2000 store  design and also plans to
remodel 57 toy stores in the United States to this format.  The Company plans to
open  approximately  40 new  international  toy stores,  including  15 franchise
stores. Our newest division,  Babies"R"Us,  will open approximately 20 stores in
the United States.  Finally,  there are plans to open  approximately 5 Kids"R"Us
children's clothing stores. The Company opened 89 toy stores in 1996, 80 in 1995
and 96 in 1994, and 7 Kids"R"Us  children's  clothing  stores in 1996, 9 in 1995
and 6 in 1994. The Company also added its first 2 KidsWorld stores, one of which
is a retrofit of an existing Toys"R"Us and Kids"R"Us  location,  and the first 6
Babies"R"Us  stores in 1996.  In addition to the stores closed in 1996 that were
part of the Company's  worldwide  restructuring  program,  the Company  closed 1
store in the United  Kingdom in 1995 and 19  Kids"R"Us  clothing  stores in 1994
which did not meet its  expectations.  These closures did not have a significant
impact on the Company's financial position.

For   1997,  capital  requirements   for  real  estate,  store   and   warehouse
fixtures and equipment,  leasehold  improvements and other additions to property
and equipment are estimated at $630 million  (including  real estate and related
costs of $375  million).  The  Company's  policy is to purchase  its real estate
where appropriate and it plans to continue this policy.

The  Company  has  an existing  $1  billion  share  repurchase  program.  As  of
February 1, 1997, the Company has repurchased  21.3 million shares of its common
stock for $693.9 million under this program since it was announced in January of
1994.

The seasonal  nature of  the  business  (approximately  47% 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
February 2000, from a syndicate of financial institutions. 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 short-term  commercial paper and other
bank borrowings for foreign subsidiaries.

**The  Company's consolidated  balance  sheet  at February 1, 1997  includes the
effects of the  acquisition  of Baby  Superstore,  Inc.


                                       13



<PAGE>
<PAGE>



CONSOLIDATED STATEMENTS OF EARNINGS
-----------------------------------
TOYS"R"US, INC. AND SUBSIDIARIES


<TABLE>
<CAPTION>
                                                                                                     Year Ended
                                                            ___________________________________________________
                                                            February 1,         February 3,         January 28,
(In millions except per share data)                               1997                1996                1995
_______________________________________________________________________________________________________________

<S>                                                           <C>                <C>                  <C>      
Net sales                                                     $ 9,932.4          $  9,426.9           $ 8,745.6
_______________________________________________________________________________________________________________

Costs and expenses:

Cost of sales                                                   6,892.5             6,592.3             6,008.0
Selling, advertising, general and administrative                2,019.7             1,894.8             1,664.2
Depreciation and amortization                                     206.4               191.7               161.4
Other charges                                                      59.5               396.6                 -  
Interest expense                                                   98.6               103.3                83.9
Interest and other income                                         (17.4)              (17.4)              (16.0)
_______________________________________________________________________________________________________________
                                                                9,259.3             9,161.3             7,901.5
_______________________________________________________________________________________________________________

Earnings before taxes on income                                   673.1               265.6               844.1
Taxes on income                                                   245.7               117.5               312.3
_______________________________________________________________________________________________________________
Net earnings                                                  $   427.4          $    148.1           $   531.8
Earnings per share                                            $    1.54          $      .53           $    1.85
_______________________________________________________________________________________________________________


</TABLE>

See notes to consolidated financial statements.


                                       14


<PAGE>
<PAGE>



CONSOLIDATED BALANCE SHEETS
---------------------------
TOYS"R"US, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>

                                                                   February 1,             February 3,
(In millions)                                                             1997                    1996
______________________________________________________________________________________________________

<S>                                                                  <C>                     <C> 
ASSETS

Current Assets:

Cash and cash equivalents                                            $   760.9               $   202.7
Accounts and other receivables                                           142.1                   128.9
Merchandise inventories                                                2,214.6                 1,999.5
Prepaid expenses and other current assets                                 42.0                    87.8
______________________________________________________________________________________________________
Total Current Assets                                                   3,159.6                 2,418.9

Property and Equipment:

Real estate, net                                                       2,410.6                 2,336.0
Other, net                                                             1,636.8                 1,522.2
______________________________________________________________________________________________________
Total Property and Equipment                                           4,047.4                 3,858.2

Goodwill                                                                 365.0                    -
Other Assets                                                             451.2                   460.4
______________________________________________________________________________________________________
                                                                     $ 8,023.2               $ 6,737.5
______________________________________________________________________________________________________


LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

Short-term borrowings                                                $   303.5               $   332.8
Accounts payable                                                       1,346.5                 1,182.0
Accrued expenses and other current liabilities                           720.0                   438.1
Income taxes payable                                                     170.7                   139.9
______________________________________________________________________________________________________
Total Current Liabilities                                              2,540.7                 2,092.8

Long-Term Debt                                                           908.5                   826.8
Deferred Income Taxes                                                    222.5                   228.7
Other Liabilities                                                        160.9                   156.9

Stockholders' Equity:

Common stock                                                              30.0                    30.0
Additional paid-in capital                                               488.8                   542.8
Retained earnings                                                      4,120.1                 3,692.7
Foreign currency translation adjustments                                 (60.6)                   12.9
Treasury shares, at cost                                                (387.7)                 (846.1)
______________________________________________________________________________________________________
Total Stockholders' Equity                                             4,190.6                 3,432.3
______________________________________________________________________________________________________
                                                                     $ 8,023.2               $ 6,737.5
______________________________________________________________________________________________________


</TABLE>


See notes to consolidated financial statements.


                                       15


<PAGE>
<PAGE>



CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
TOYS"R"US, INC. AND SUBSIDIARIES


<TABLE>
<CAPTION>

                                                                                                     Year Ended
                                                                    ____________________________________________


                                                                    February 1,     February 3,    January  28,
(In millions)                                                              1997            1996            1995
________________________________________________________________________________________________________________
<S>                                                                     <C>             <C>             <C>    
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings                                                            $ 427.4         $ 148.1         $ 531.8
Adjustments to reconcile net earnings to net cash
  provided by operating activities:
  Other charges                                                             -             396.6             -
  Depreciation and amortization                                           206.4           191.7           161.4
  Deferred income taxes                                                    23.4           (66.7)          (14.5)
  Changes in operating assets and liabilities:
     Accounts and other receivables                                       (14.3)          (10.8)          (17.4)
     Merchandise inventories                                             (194.6)         (193.1)         (221.6)
     Prepaid expenses and other operating assets                          (10.1)          (15.7)          (31.7)
     Accounts payable, accrued expenses and other liabilities             261.4          (150.5)          183.5
     Income taxes payable                                                  43.8           (49.3)           (2.0)
________________________________________________________________________________________________________________
Net cash provided by operating activities                                 743.4           250.3           589.5
________________________________________________________________________________________________________________

CASH FLOWS FROM INVESTING ACTIVITIES
Cash received with the acquisition of Baby Superstore                      67.5             -               -
Capital expenditures, net                                                (415.4)         (467.5)         (585.7)
Other assets                                                              (35.8)          (67.4)          (44.6)
________________________________________________________________________________________________________________
Net cash used in investing activities                                    (383.7)         (534.9)         (630.3)
________________________________________________________________________________________________________________

CASH FLOWS FROM FINANCING ACTIVITIES
Short-term borrowings, net                                                 (9.7)          210.1          (117.2)
Long-term borrowings                                                      325.4            82.2            34.6
Long-term debt repayments                                                (133.1)           (9.3)           (1.1)
Exercise of stock options                                                  28.5            16.2            26.0
Share repurchase program                                                    -            (200.2)         (469.7)
Sale of stock to Petrie Stores Corporation                                  -               -             161.6
________________________________________________________________________________________________________________
Net cash provided by/(used in) financing activities                       211.1            99.0          (365.8)
________________________________________________________________________________________________________________

Effect of exchange rate changes on cash and cash equivalents              (12.6)           18.5           (15.5)

CASH AND CASH EQUIVALENTS
Increase/(decrease) during year                                           558.2          (167.1)         (422.1)
Beginning of year                                                         202.7           369.8           791.9
________________________________________________________________________________________________________________
End of year                                                             $ 760.9         $ 202.7         $ 369.8
________________________________________________________________________________________________________________

</TABLE>


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

The  Company  considers its  highly  liquid  investments  purchased  as  part of
its daily cash management  activities to be cash equivalents.  During 1996, 1995
and 1994, the Company made income tax payments of $177.2,  $234.5 and $318.9 and
interest  payments (net of amounts  capitalized)  of $108.6,  $118.4 and $123.6,
respectively.

See notes to consolidated financial statements.


                                       16



<PAGE>
<PAGE>





CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
TOYS"R"US, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>


                                                                      Common Stock       
                                                             _____________________________
                                                                                                                           Foreign
                                                             Issued            In Treasury    Additional                  currency
                                                 __________________      _________________       paid-in     Retained  translation
(In millions)                                    Shares      Amount      Shares     Amount       capital     earnings  adjustments
___________________________________________________________________________________________________________________________________
<S>                                               <C>        <C>         <C>      <C>            <C>        <C>            <C>     
Balance, January 29, 1994                         297.9      $ 29.8       (8.4)   $ (292.4)      $ 454.0    $ 3,012.8      $ (56.0)

Net earnings for the year                           -           -          -           -             -          531.8          -
Share repurchase program                            -           -        (13.1)     (469.7)          -            -            -
Exercise of stock options, net of tax benefit       0.1         -          1.1        41.9         (15.8)         -            -
Exchange with and sale of stock to
  Petrie Stores Corporation                         -           -          2.2        78.5          83.1          -            -
Foreign currency translation adjustments            -           -          -           -             -            -           30.9
___________________________________________________________________________________________________________________________________
Balance, January 28, 1995                         298.0        29.8      (18.2)     (641.7)        521.3      3,544.6        (25.1)
___________________________________________________________________________________________________________________________________

Net earnings for the year                           -           -          -           -             -          148.1          -
Share repurchase program                            -           -         (7.6)     (200.2)          -            -            -
Exercise of stock options, net of tax benefit       -           -           .9        34.2         (16.7)         -            -
Corporate inversion                                 2.4         0.2       (2.4)      (38.4)         38.2          -            -
Foreign currency translation adjustments            -           -          -           -             -            -           38.0
___________________________________________________________________________________________________________________________________
Balance, February 3, 1996                         300.4        30.0      (27.3)     (846.1)        542.8      3,692.7         12.9
___________________________________________________________________________________________________________________________________

Net earnings for the year                           -           -          -           -             -          427.4          -
Acquisition of Baby Superstore, Inc.                -           -         13.0       400.2         (24.2)         -            -
Exercise of stock options, net of tax benefit       -           -          1.7        58.2         (29.8)         -            -
Foreign currency translation adjustments            -           -          -           -             -            -          (73.5)
___________________________________________________________________________________________________________________________________
Balance, February 1, 1997                         300.4      $ 30.0      (12.6)   $ (387.7)      $ 488.8    $ 4,120.1      $ (60.6)
___________________________________________________________________________________________________________________________________


</TABLE>

See notes to consolidated financial statements.


                                       17


<PAGE>
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(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 1996,  1995 and 1994 are for the 52 weeks ended  February  1, 1997,  53 weeks
ended February 3, 1996 and the 52 weeks ended January 28, 1995, respectively.


Principles of Consolidation

The consolidated  financial  statements  include the accounts of the Company and
its  subsidiaries.  The  consolidated  balance sheet and statement of cash flows
also reflect the acquisition of Baby  Superstore,  Inc. at February 1, 1997. 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.


Merchandise Inventories

Merchandise  inventories for the U.S.A.  toy store  operations,  which represent
over  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  February  1, 1997 or  February 3,
1996. 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's  policy to recognize  impairment  losses  relating to  long-lived
assets is 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.


Capitalized Interest

Interest on borrowed funds is capitalized during construction of property and is
amortized  by charges to  earnings  over the  depreciable  lives of the  related
assets.  Interest of $3.3, $6.1 and $6.9 was  capitalized  during 1996, 1995 and
1994, respectively.


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
February  1, 1997 or  February  3, 1996.  The  related  receivable,  payable and
deferred  gain or loss are  included  on a net basis in the balance  sheet.  The
Company had approximately  $205.0 of short term outstanding forward contracts at
both  February  1,  1997  and  February  3,  1996  maturing  in 1997  and  1996,
respectively,  which 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 $325.4  currency  swap
obligation  outstanding  at  February  1, 1997  related to its  (pound)200  note
payable due 2001.


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.


ACQUISITION

On February 3, 1997, the Company  acquired all of the outstanding  common shares
of Baby  Superstore,  Inc.  ("Baby  Superstore")  for 13  million  shares of its
treasury stock valued at approximately $376.0. Each Baby Superstore  shareholder
received  .8121 of a share of  Company  stock  for each Baby  Superstore  share,
except for the  Chairman  and Chief  Executive  Officer of Baby  Superstore  who
received .5150 of a share.

Baby  Superstore,  a leading  retailer  of baby and young  children's  products,
opened  its  first  store in 1971 and has  operated  as a public  company  since
November,  1994. Baby Superstore  operated 76 stores in 23 states,  primarily in
the southeast and midwest. Products sold by Baby Superstore were directed toward
newborns  and  children  up to three  years old.  The  Company  plans to operate
substantially all the acquired stores.

This  acquisition  has been accounted for as a purchase at February 1, 1997. The
excess of purchase price over net assets acquired of $365.0 has been recorded as
goodwill and will be amortized on a straight-line basis over 40 years.

Consolidated  pro forma income and earnings per share, as if the acquisition had
taken  place  as of the  beginning  of 1995,  would  not  have  been  materially
different from the reported amounts for 1996 and 1995.


                                       18



<PAGE>
<PAGE>


OTHER CHARGES


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 has recorded a
provision of $59.5,  ($37.8 after tax or $.14 cents per share)  representing all
costs in connection  with this matter.  The Company has filed an appeal with the
United States Court of Appeals for the second circuit.

On February 1, 1996, the Company recorded charges of $396.6 ($269.1 after tax or
$.98  cents  per  share)  to   restructure   its   worldwide   operations   (the
"restructuring")  and to early adopt Financial  Accounting Standards Board ("FAS
No. 121"),  "Accounting  for the Impairment of Long-Lived  Assets and Long-Lived
Assets to be Disposed Of." The  restructuring  charge included $184.0 related to
strategic inventory  repositioning,  $84.4 related to the closing or franchising
of 25 stores,  $71.6 for the  consolidation  of three  distribution  centers and
seven  administrative  facilities and $32.4 of other costs. Total  restructuring
and other charges were comprised of $208.8  relating to operations in the United
States and $187.8 for  international  operations.  The charge to early adopt FAS
No.121 was $24.2,  primarily  related to a write down of certain store assets to
fair value, based on discounted cash flows. At February 1, 1997, the Company had
approximately $90 million of liabilities remaining for its restructuring program
primarily  relating to long-term lease  obligations and other  commitments.  The
Company  believes  these  reserves are  adequate to complete  the  restructuring
program.


PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>


                            Useful Life     February 1,     February 3,
                             (in years)            1997            1996
_______________________________________________________________________
<S>                            <C>            <C>             <C>    
Land                                          $   821.2       $   802.4

Buildings                         45-50         1,834.3         1,745.3
Furniture and equipment            5-20         1,521.9         1,351.9
Leaseholds and
 leasehold improvements        121\2-50         1,060.1           959.0
Construction in progress                           37.1            45.6
Leased property
 under capital leases                              30.6            25.1
_______________________________________________________________________
                                                5,305.2         4,929.3
Less accumulated depreciation
 and amortization                               1,257.8         1,071.1
_______________________________________________________________________
                                              $ 4,047.4       $ 3,858.2
_______________________________________________________________________


</TABLE>


<TABLE>
<CAPTION>


SEASONAL FINANCING AND LONG-TERM DEBT


                                                      February 1,   February 3,
                                                             1997          1996
________________________________________________________________________________
<S>                                                       <C>           <C> 
5.61% (pound)200 note payable,
   due 2001(a)                                            $ 325.4       $   -
8 3/4% debentures, due 2021,
  net of expenses                                           198.2         198.1
Japanese yen loans payable at annual
  interest rates from 3.45% to 6.47%,
  due in varying amounts through 2012                       150.2         178.3
4 7/8 % convertible subordinated notes payable,
   due October 2000(b)                                      115.0           -
8 1/4% sinking fund debentures,
  due 2017, net of discounts                                 88.4          88.3
Industrial revenue bonds,
  net of expenses (c)                                        70.0          74.2
7% British pound sterling loan payable,
  due quarterly through 2001(d)                              67.1          77.3
Mortgage notes payable at annual
  interest rates from 6% to 11% (e)                          12.2          19.2
Obligations under capital leases                             17.1          12.8
11% British pound sterling Stepped
  Coupon Guaranteed Bonds                                     -           198.4
________________________________________________________________________________
                                                          1,043.6         846.6
Less current portion (f)                                    135.1          19.8
________________________________________________________________________________
                                                          $ 908.5       $ 826.8
________________________________________________________________________________

</TABLE>


<PAGE>

(a)  Supported  by a  (pound)200  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 110 basis points.

(b)  Obligation  of Baby  Superstore.  Convertible  into shares of the Company's
common stock at the  conversion  price of $66.34.  These notes are subject to an
offer to purchase at par, plus accrued  interest,  which will close on April 16,
1997. Accordingly, these notes have been classified as current obligations.

(c) Bank letters of credit of $52.7,  expiring in 1998, 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 3.4% at February 1, 1997.

(d)  Collateralized  by property with a carrying  value of $159.5 at February 1,
1997.

(e) Collateralized by property and equipment with an aggregate carrying value of
$18.2 at February 1, 1997.

(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 February 1, 1997 was
approximately  $1,007.0. 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 February 2000. 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.

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  February 1, 1997 and
February 3, 1996 was 3.1% and 4.0%, respectively.

                                       19



<PAGE>
<PAGE>


The annual maturities of long-term debt at February 1, 1997 are as follows:

____________________________________________
1997                               $   135.1
1998                                    25.7
1999                                    26.4
2000                                    26.0
2001                                   334.0
2002 and subsequent                    496.4
____________________________________________
                                   $ 1,043.6
____________________________________________


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 February 1, 1997 are as follows:

<TABLE>
<CAPTION>

                                  Gross                          Net
                                minimum       Sublease       minimum
                                rentals         income       rentals
____________________________________________________________________
<S>                           <C>              <C>         <C>      
1997                          $   331.8        $  17.4     $   314.4
1998                              328.3           16.9         311.4
1999                              326.3           15.6         310.7
2000                              322.1           12.9         309.2
2001                              317.5           11.8         305.7
2002 and subsequent             3,303.3           65.2       3,238.1
____________________________________________________________________
                              $ 4,929.3        $ 139.8     $ 4,789.5
____________________________________________________________________

Total rental expense was as follows:
                                                          Year ended
____________________________________________________________________
                            February 1,    February 3,   January 28,
                                   1997           1996          1995
____________________________________________________________________
Minimum rentals                 $ 295.3        $ 284.3       $ 226.4
Additional amounts computed
  as percentages of sales           5.5            5.6           6.3
____________________________________________________________________
                                  300.8          289.9         232.7
Less sublease income               18.8           17.0          10.3
____________________________________________________________________
                                $ 282.0        $ 272.9       $ 222.4
____________________________________________________________________


</TABLE>


STOCKHOLDERS' EQUITY

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


<TABLE>
<CAPTION>


                                      February 1,   February 3,
                                             1997          1996
_______________________________________________________________
<S>                                         <C>           <C>  
Authorized shares                           650.0         650.0
_______________________________________________________________
Issued shares                               300.4         300.4
Treasury shares                              12.6          27.3
_______________________________________________________________

Issued and outstanding shares               287.8         273.1
_______________________________________________________________

</TABLE>

<PAGE>
Earnings per share is computed by dividing net earnings by the weighted  average
number of common shares  outstanding  after  reduction  for treasury  shares and
assuming  exercise of dilutive  stock  options  computed by the  treasury  stock
method using the average market price during the year.  Weighted  average number
of common and common equivalent shares used in computing earnings per share were
277.5,  276.9 and 287.4 at  February  1, 1997,  February 3, 1996 and January 28,
1995, respectively.

Effective  January  1,  1996,  the  Company  formed a new  parent  company  (the
"Surviving  Company")  thus making the former parent  company (the  "Predecessor
Company") a  wholly-owned  subsidiary of the Surviving  Company.  As a result of
this corporate inversion,  each share of common stock of the Predecessor Company
was converted into one share of common stock of the Surviving Company.

In April  1994,  the  Company  entered  into an  agreement  with  Petrie  Stores
Corporation  ("Petrie"),  the then  holder of 14% of the  Company's  outstanding
Common Stock. The Company consummated its transaction with Petrie on January 24,
1995,  wherein  42.1 shares of the  Company's  common stock were issued from its
treasury in exchange for 39.9 shares of the Company's common stock and $165.0 in
cash.


TAXES ON INCOME

The provisions for income taxes consist of the following:

<TABLE>
<CAPTION>

                                                     Year ended
________________________________________________________________
                       February 1,    February 3,   January 28,
                              1997           1996          1995
________________________________________________________________
<S>                        <C>            <C>           <C>    
Current:
  Federal                  $ 135.9        $ 137.1       $ 251.6
  Foreign                     56.8           26.7          29.2
  State                       29.6           20.4          46.0
________________________________________________________________
                             222.3          184.2         326.8
________________________________________________________________
Deferred:
  Federal                     58.6          (21.8)          8.9
  Foreign                    (39.2)         (41.6)        (24.7)
  State                        4.0           (3.3)          1.3
________________________________________________________________
                              23.4          (66.7)        (14.5)
________________________________________________________________
Total tax provision        $ 245.7        $ 117.5       $ 312.3
________________________________________________________________


</TABLE>

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

<TABLE>
<CAPTION>

                                                                      Year ended
________________________________________________________________________________

                                        February 1,   February 3,   January 28,
                                               1997          1996          1995
________________________________________________________________________________
<S>                                         <C>            <C>           <C>   
Deferred tax assets:
  Net operating loss carryforwards          $154.8         $108.9        $ 94.0
  Restructuring                               53.1          122.1           0.0
  Other                                       31.5           21.4          35.9
________________________________________________________________________________
  Gross deferred tax assets                  239.4          252.4         129.9
  Valuation allowance                        (36.8)         (29.5)        (17.9)
________________________________________________________________________________
                                            $202.6         $222.9        $112.0
Deferred tax liabilities:
  Property, plant and equipment              249.3          245.0         217.0
  LIFO inventory                              63.7           64.3          49.9
  Other tax                                    3.8            4.4           4.0
________________________________________________________________________________
Gross deferred liability                    $316.8         $313.7        $270.9
________________________________________________________________________________
Net deferred tax liability                  $114.2         $ 90.8        $158.9
________________________________________________________________________________

</TABLE>

                                       20



<PAGE>
<PAGE>


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

<TABLE>
<CAPTION>


                                                                     Year ended
________________________________________________________________________________
                                        February 1,   February 3,   January 28,
                                               1997          1996          1995
________________________________________________________________________________
<S>                                            <C>            <C>         <C>  
Statutory tax rate                             35.0%          35.0%       35.0%

State income taxes, net of
  federal income tax benefit                    3.7            3.4         3.7 
Foreign                                        (2.3)          (1.3)       (0.4)
Restructuring and other charges                 -              7.2         -   
Other, net                                      0.1           (0.1)       (1.3)
________________________________________________________________________________
Effective tax rate                             36.5%          44.2%       37.0%
________________________________________________________________________________


</TABLE>


Deferred  income  taxes are not  provided  on  unremitted  earnings  of  foreign
subsidiaries that are intended to be indefinitely invested.  Unremitted earnings
were  approximately  $361.0 at February 1, 1997,  exclusive  of amounts  that if
remitted  would  result in little or no tax under  current  U.S.  tax laws.  Net
income taxes of  approximately  $114.0 would be due if these earnings were to be
remitted.


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 $30.8,  $32.3 and $31.4 have been charged to earnings
in 1996, 1995, and 1994, respectively.


STOCK OPTIONS


The Company has Stock Option Plans (the "Plans")  which provide for the granting
of options to purchase the Company's common stock to substantially all employees
and non-employee directors of the Company. The Plans provide for the issuance of
non-qualified  options,  incentive  stock  options,  performance  share options,
performance units, stock appreciation rights, restricted shares 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,  3.4 stock  options  were  granted to
certain  senior  executives  during the  period  from 1988 to 1996  pursuant  to
stockholder  approved individual plans. Of this total, 2.9 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.  Most options
must be exercised within ten years from the date of grant.

At February 1, 1997, an aggregate of 36.2 shares of authorized common stock were
reserved  for all of the Plans noted  above,  of which 13.0 were  available  for
future grants. All outstanding  options expire at dates ranging from May 1997 to
January 2007.


                                       21


<PAGE>
<PAGE>


Stock option transactions are summarized as follows:

<TABLE>
<CAPTION>

                                                        Shares Under Option
___________________________________________________________________________
                                                    Non-   Weighted-Average
                                   Incentive   Qualified     Exercise Price
___________________________________________________________________________
<S>                                      <C>        <C>           <C>      
Outstanding February 3, 1996              .2        20.2          $   24.08
Granted *                                 .4         6.3              34.59
Exercised                                (.2)       (2.1)             17.67
Canceled                                   -        (1.6)             25.20
___________________________________________________________________________
Outstanding February 1, 1997              .4        22.8          $   25.82
___________________________________________________________________________
Options exercisable
 at February 1, 1997                       -         9.2          $   24.15
___________________________________________________________________________

</TABLE>

*Includes options assumed with the acquisition of Baby Superstore.


The Company  utilizes a restoration  feature to encourage the early  exercise of
options and retention of shares,  thereby  promoting  increased  employee  share
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,  become  exercisable  six  months  from the  date of  grant  and
generally expire on the same date as the original options that were exercised.

The Company has adopted the disclosure only provisions of Statement of Financial
Accounting Standards (FAS) No. 123,  "Accounting for Stock-Based  Compensation",
issued in October 1995. In  accordance  with the  provisions of FAS No. 123, the
Company applies APB Opinion 25 and related interpretations 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 FAS No. 123, net income
and  earnings  per share  would  have  been  reduced  to the pro  forma  amounts
indicated in the table below:

<TABLE>
<CAPTION>

                                            1996          1995
______________________________________________________________
<S>                                      <C>           <C>    
Net income-as reported                   $ 427.4       $ 148.1
Net income-pro forma                       411.3         139.5
Earning per share-as reported               1.54           .53
Earnings per share-pro forma                1.48           .50
______________________________________________________________

</TABLE>

The weighted-average fair value at date of grant for options granted in 1996 and
1995 were $24.58 and $31.49,  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  throughout the 1995 and 1996 years, a
range of assumptions are provided below:



____________________________________________________________________
Expected stock price volatility                       .241 - .328
Risk-free interest rate                               5.0% - 7.1%
Weighted average expected life of options               6 years
____________________________________________________________________


<PAGE>

The effects of applying FAS 123 and the results  obtained through the use of the
Black-Scholes  option  pricing  model are not  necessarily  indicative of future
values.


FOREIGN OPERATIONS


Certain  information  relating to the Company's foreign  operations is set forth
below.  Corporate assets include all cash and cash equivalents and other related
assets.

<TABLE>
<CAPTION>
                                                         Year ended
____________________________________________________________________
                       February 1,      February 3,     January 28,
                              1997             1996            1995
____________________________________________________________________
<S>                      <C>              <C>             <C>    
Sales
  Domestic               $ 7,151.2        $ 6,791.5       $ 6,644.8
  Foreign                  2,781.2          2,635.4         2,100.8
____________________________________________________________________
Total                    $ 9,932.4        $ 9,426.9       $ 8,745.6
____________________________________________________________________
Operating Profit
  Domestic               $   692.2        $   432.8 (b)   $   778.7
  Foreign                    131.3            (74.2)(c)       140.8
General corporate
  expenses                   (69.2)(a)         (7.1)           (7.5)
Interest expense, net        (81.2)           (85.9)          (67.9)
____________________________________________________________________
Earnings before taxes
  on income              $   673.1        $   265.6       $   844.1
____________________________________________________________________
Identifiable Assets
  Domestic               $ 4,877.9        $ 4,013.2       $ 3,950.5
  Foreign                  2,345.6          2,483.0         2,216.1
  Corporate                  799.7            241.3           404.6
____________________________________________________________________
Total                    $ 8,023.2        $ 6,737.5       $ 6,571.2
____________________________________________________________________

</TABLE>

(a) After an arbitration award charge of $59.5.
(b) After restructuring and other charges of $208.8.
(c) After restructuring and other charges of $187.8.


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.  Hearings on this  complaint  commenced on
March 5, 1997.

Since the filing of the FTC  complaint,  several  class  action  suits have been
filed against the Company,  alleging that the Company has violated certain state
competition  laws as a consequence of the behavior alleged in the FTC complaint.
These class action suits seek  damages in  unspecified  amounts and other relief
under state law.

The Company believes that both its policy and its conduct in connection with the
foregoing are within the law and plans to contest these actions vigorously.  The
Company also believes that these actions will not have a material adverse effect
on its financial condition or results of operations.


                                       22


<PAGE>
<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/ Michael Goldstein             /s/ Louis Lipschitz
Vice Chairman and                 Executive Vice President
Chief Executive Officer           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 February 1, 1997 and February 3, 1996,  and the related
consolidated  statements  of earnings,  stockholders'  equity and cash flows for
each of the three years in the period ended  February 1, 1997.  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 February 1, 1997 and February 3, 1996, and the consolidated
results of their  operations and their cash flows for each of the three years in
the period  ended  February  1, 1997,  in  conformity  with  generally  accepted
accounting principles.


                                                       /s/ Ernst & Young LLP


New York, New York
March 12, 1997


                                       23



<PAGE>
<PAGE>


DIRECTORS AND OFFICERS


DIRECTORS

Charles Lazarus
Chairman of the Board of the Company

Robert A. Bernhard
Real Estate Developer

RoAnn Costin
President, Reservoir Capital
Management, Inc.

Michael Goldstein
Vice Chairman and
Chief Executive Officer of the Company

Milton S. Gould
Attorney-at-law; Of Counsel to
LeBoeuf, Lamb, Greene & MacRae

Shirley Strum Kenny
President, State University of
New York at Stony Brook

Norman S. Matthews
Former President, Federated Department
Stores, Inc; Consultant

Howard W. Moore
Former Executive Vice President -
General Merchandise Manager
of the Company; Consultant

Robert C. Nakasone
President and Chief Operating
Officer of the Company

Harold M. Wit
Managing Director, Allen & Company
Incorporated



OFFICERS - CORPORATE AND ADMINISTRATIVE


Michael Goldstein
Vice Chairman and
Chief Executive Officer

Robert C. Nakasone
President and
Chief Operating Officer

Louis Lipschitz
Executive Vice President
and Chief Financial Officer

Roger C. Gaston
Senior Vice President -
Human Resources

Michael P. Miller
Senior Vice President -
Real Estate

Thomas J. Reinebach
Senior Vice President and
Chief Information Officer

Gayle C. Aertker
Vice President -
Real Estate

Michael J. Corrigan
Vice President -
Compensation and Benefits

Eileen C. Gabriel
Vice President -
Information Systems

Jon W. Kimmins
Vice President -
Treasurer

Joseph J. Lombardi
Vice President -
Controller

Matthew J. Lombardi
Vice President -
Information Technology

Michael L. Tumolo
Vice President -
Counsel

Peter W. Weiss
Vice President -
Taxes

Robert S. Zarra
Vice President -
Internal Audit

Andre Weiss
Secretary -
Partner-Schulte Roth & Zabel, LLP

<PAGE>



TOYS"R"US UNITED STATES - OFFICERS AND GENERAL MANAGERS


Michael J. Madden
President -
Store Operations

Robert J. Weinberg
Senior Vice President -
General Merchandise Manager

Van H. Butler
Senior Vice President -
Divisional Merchandise Manager

Ernest V. Speranza
Senior Vice President -
Advertising/Marketing

David Brewi
Vice President -
Divisional Merchandise Manager

Kristopher M. Brown
Vice President -
Distribution and Traffic

Richard N. Cudrin
Vice President -
Human Resources
and Corporate Employee Relations

John F. Cummo
Vice President -
Creative Services

Thomas DeLuca
Vice President - Imports, Product
Development and Safety Assurance

Harvey J. Finkel
Vice President -
Regional Operations

Martin E. Fogelman
Vice President -
Divisional Merchandise Manager

Michael A. Gerety
Vice President -
Store Planning

Debra M. Kachurak
Vice President -
Operations Development

Mitchell Loukota
Vice President -
Divisional Merchandise Manager

Charlene Mady
Vice President -
Area Merchandise Planning

Gerald S. Parker
Vice President -
Regional Operations

Lee Richardson
Vice President -
Advertising

Timothy J. Slade
Vice President -
Transportation and Traffic

John P. Sullivan
Vice President -
Divisional Merchandise Manager

William A. Stephenson
Vice President -
Merchandise Planning and Allocation

Dennis J. Williams
Vice President-
Regional Operations and
General Manager
New York/Northern New Jersey


                                       24



<PAGE>
<PAGE>


GENERAL MANAGERS


Robert F. Price
Vice President-
Southern California/
Arizona/Nevada/Hawaii

Thomas A. Drugan
Illinois/Wisconsin/Minnesota

Cathy Filion
Michigan/N.W. Ohio

Mark H. Haag
Pacific Northwest/Alaska

Truvillus Hall
Northern California/Utah

Michael K. Heffner
Alabama/Georgia/South
Carolina/Tennessee

Daniel D. Hlavaty
Central Ohio/Indiana/Kentucky

Richard A. Moyer
S.Texas/Louisiana/Mississippi

John J. Prawlocki
Florida/Puerto Rico

Edward F. Siegler
Maryland/Virginia/North Carolina

Carl P. Spaulding
New England

Gregg Treadway
Colorado/Kansas/Missouri/
Iowa/Nebraska

Kevin VanderGriend
N.E. Ohio/W. Pennsylvania/
N. New York


TOYS"R"US INTERNATIONAL - OFFICERS AND COUNTRY MANAGEMENT


Gregory R. Staley
President

Lawrence H. Meyer
Vice President -
Chief Financial Officer

Joan W. Donovan
Vice President -
General Merchandise Manager

Joseph Giamelli
Vice President -
Information Systems

Jeff Handler
Vice President -
International Advertising

Larry S. Johnson
Vice President -
Franchise Markets

Adam F. Szopinski
Vice President -
Operations

<PAGE>

Michael C. Taylor
Vice President -
Logistics

Pierre Buuron
President -
Toys"R"Us Central Europe

Jacques LeFoll
President -
Toys"R"Us France/Belgium

David Rurka
Managing Director -
Toys"R"Us United Kingdom

John Schryver
Managing Director -
Toys"R"Us Australia

Manabu Tazaki
President -
Toys"R"Us Japan

Antonio Urcelay
Managing Director -
Toys"R"Us Iberia

Keith Van Beek
President-
Toys"R"Us Canada

Larry D. Gardner
Vice President -
Toys"R"Us Asia

Scott Chen
General Manager -
Toys"R"Us Taiwan

Joe Tang
General Manager -
Toys"R"Us Hong Kong

Michael Yeo
General Manager -
Toys"R"Us Singapore


KIDS"R"US/BABIES"R"US - OFFICERS*


Richard L. Markee
President -
Kids"R"Us and Babies"R"Us

Gwen Manto
Senior Vice President -
General Merchandise Manager

James G. Parros
Senior Vice President -
Stores and
Distribution Center Operations

Jonathan M. Friedman
Vice President -
Chief Financial Officer -
Kids"R"Us and Babies"R"Us

James L. Easton
Vice President -
Divisional Merchandise Manager

William Farrell
Vice President -
Physical Distribution

Jerel G. Hollens
Vice President -
Merchandise Planning and
Management Information Systems


<PAGE>



Debra G. Hyman
Vice President -
Divisional Merchandise Manager

Elizabeth S. Jordan
Vice President -
Human Resources

John C. Morrow
Vice President -
Management Information Systems

Christopher M. Scherm
Vice President -
Divisional Merchandise Manager

David E. Schoenbeck
Vice President -
Operations - Babies"R"Us

David S. Walker
Vice President-
Advertising


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


                                       25


<PAGE>
<PAGE>


QUARTERLY FINANCIAL DATA AND MARKET INFORMATION


QUARTERLY FINANCIAL DATA

(In millions except per share data)

The  following   table  sets  forth  certain   unaudited   quarterly   financial
information.

<TABLE>
<CAPTION>


                                      First      Second       Third      Fourth
Year Ended                          Quarter     Quarter     Quarter     Quarter*
________________________________________________________________________________

February 1, 1997
________________________________________________________________________________
<S>                               <C>         <C>         <C>         <C>      
Net Sales                         $ 1,645.5   $ 1,736.4   $ 1,883.0   $ 4,667.5
Cost of Sales                       1,124.4     1,177.3     1,280.4     3,310.4
Other Charges                           -          55.0         -           4.5
Net Earnings (Loss)                    18.7        (7.5)       33.3       382.9
Earnings (Loss) per Share             $ .07      $ (.03)      $ .12      $ 1.37

February 3, 1996
________________________________________________________________________________
Net Sales                         $ 1,493.0   $ 1,614.2   $ 1,714.5   $ 4,605.2
Cost of Sales                       1,017.3     1,104.5     1,168.5     3,302.0
Other Charges                           -           -           -         396.6
Net Earnings                           18.4        15.8        20.9        93.0
Earnings per Share                    $ .07       $ .06       $ .08      $  .34



</TABLE>

*For the 13 weeks ended February 1, 1997 and the 14 weeks ended February 3, 1996


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-eighth) based on New York Stock Exchange trading since January 28, 1995.

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

The Company had approximately 32,300 Stockholders of Record on March 11,1997.


<TABLE>
<CAPTION>

                                             High         Low
________________________________________________________________

<S>      <C>                                 <C>          <C>
1995     1st Quarter                         30 7/8       23 3/4
         2nd Quarter                         29 1/2       24 1/4
         3rd Quarter                         28 3/4       21 5/8
         4th Quarter                         24 3/8       20 1/2
________________________________________________________________
1996     1st Quarter                         29 7/8       21 7/8
         2nd Quarter                         30 7/8       23 3/4
         3rd Quarter                         34 1/16      25 7/8
         4th Quarter                         37 5/8       24 3/8

</TABLE>


                                       26


<PAGE>
<PAGE>


CORPORATE DATA


Annual Meeting

The  Annual  Meeting  of  the  Stockholders  of Toys"R"Us  will  be  held at the
Somerset Hills Hotel, 200 Liberty Corner Road, at exit 33 off I-78,  Warren,  NJ
07059 on Wednesday, June 4, 1997 10:00 A.M.


The office of the
Company is located at

461 From Road
Paramus, New Jersey 07652
Telephone: 201-262-7800


General Counsel

Schulte Roth & Zabel,LLP
900 Third Avenue
New York, New York 10022


Independent Auditors

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


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  February  1, 1997,
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. Significant news releases are
anticipated to be available as follows:


Call After...     For the following...

May   19, 1997     1st Quarter Results
Aug.  18, 1997     2nd Quarter Results
Nov.  17, 1997     3rd Quarter Results
Jan.   8, 1998     Christmas Sales Results
Mar.  11, 1998     1997 Results


Common Stock Listed

New York Stock Exchange,
Symbol: TOY


Registrar and Transfer Agent

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

Visit us on the Internet at www.toysrus.com


                                       27


<PAGE>