LBO Model

TRANSACTION ASSUMPTIONS TRANSACTION ASSUMPTIONS

P

Prriicce e oof f sshhaarre e oon n MMaarrcch h 1166, , 22000055 $$2244..7777 SSoouurrccee: : hhttttpp::////mmoonneeyy..ccnnnn..ccoomm//22000055//0033//1177//nneewwss//ffoo P

Prreemmiiuumm 88%%

Purchase Price

Purchase Price $26.75$26.75

SShhaarrees s oouuttssttaannddiinng g ((iin n mmiilllliioonnss)) 222200..5555 NNeet t IInnccoomme e oof f 22000055/ / ddiilluutteed d eeaarrnniinnggs s ppeer r sshhaarree B

Baassiic c eeqquuiitty y vvaalluue e ((iin n mmiilllliioonnss)) $$55,,990000..0000 ppuurrcchhaasse e pprriiccee**SShhaarrees s oouuttssttaannddiinngg D

Diilluutteed d sshhaarrees s oouuttssttaannddiinng g ((iin n mmiilllliioonnss)) $$224422..6699 D

Diluted equity valueiluted equity value $6,492.41$6,492.41

P

Plluuss: : EExxiissttiinng g ddeebbt t ((iin n mmiilllliioonnss)) $$22,,331122..0000 ssuum m oof f sshhoorrt t tteerrm m bboorrrroowwiinnggss, , lloonng g tteerrm m ddeebbt t aannd d ccuu Less: Cash, cash equivalents, short

Less: Cash, cash equivalents, short term investments (interm investments (in millions)

millions) -$2,203.00-$2,203.00

Implied enterprise value (in millions)

Implied enterprise value (in millions) $6,601.41$6,601.41 F

F_{eeees s aannd d eexxppeennssees s ((iin n mmiilllliioonnss)) $$336688..0000} Implied pro forma enterprise value

Implied pro forma enterprise value $6,969.41$6,969.41

EBITDA of 2005

EBITDA of 2005 $662.00$662.00

EBITDA multiple

EBITDA multiple 10.5310.53 EV/EBITDAEV/EBITDA

CALCULATION OF

CALCULATION OFDDILUTEILUTEDDSHARES OUTSTANSHARES OUTSTANDDING (USING TREASURY STOCK METHOING (USING TREASURY STOCK METHODD))

Tranch Tranch

Number of options (in Number of options (in

millions)

millions) PricePrice DDilution (in millions)ilution (in millions)

Tranche A Tranche A 4.704.70 $$88..0000 3..1318822003344771199 Tranche B Tranche B 6.006.00 $$66..0000 4..5454466662288998877 Tranche C Tranche C 12.2012.20 $$55..0000 9..7973377334433556611 Tranche D Tranche D 5.405.40 $$66..0000 4..0409911996666008888 Tranche E Tranche E 0.700.70 $$44..0000 0..5058866996600003322 T Toottaall 2299..0000 2222..1144449933333399 SOURCES OF CASH (

SOURCES OF CASH ($$ iin n mmiilllliioonnss)) UUSSEES S OOF F CCAASSH H (($$ in millions)in millions)

vvaaiillaabblleeccaasshh $$996666

Purchase of common Purchase of common stock

stock $5,900$5,900

Purchase of stock options Purchase of stock options

OPERATING ASSUMPTIONS

2003 2004 2005

R_{evenue growth %} 0.13% -1.94%

Cost of Sales %R_evenue 68.99% 67.54% 67.62%

SG&A %R_evenue 24.10% 26.73% 26.41%

Depreciation and Amortization %R_evenue 3.00% 3.25% 3.19%

R_{estructuring and other charges %}R_evenue 0.00% 0.56% 0.04%

Interest Expense

Effectivecashinterestrate 0.83%

Effective tax rate (income tax/pretax income) 36.04% 32.26% -30.57%

Account receivables % revenue 1.29% 1.38%

Accounts receivales days 4.71 5.03

Inventory % Cost of sales 27.39% 25.10%

Accounts payables % Cost of sales 13.37% 13.63%

Accounts payables days 48.79 49.75

Capex %R_evenue 2.31% 2.42%

TOYS R US

INCOME STATEMENT ($ in millions) 2003 2004 2005

NetSales $11,305.00 $11,320.00 $11,100.00

CostofSales -$7,799.00 -$7,646.00 -$7,506.00

Gross Margin $3,506.00 $3,674.00 $3,594.00

SG&A -$2,724.00 -$3,026.00 -$2,932.00

EBITDA $782.00 $648.00 $662.00

Depreciation and Amortization -$339.00 -$368.00 -$354.00

R_{estructuring and other charges $0.00 -$63.00 -$4.00}

EBIT $443.00 $217.00 $304.00

Interestexpense -$119.00 -$142.00 -$130.00

Interestandotherincome $9.00 $18.00 $19.00

Pretaxincome $333.00 $93.00 $193.00

Income tax (expense)/benefit -$120.00 -$30.00 $59.00

Netincome $213.00 $63.00 $252.00

from debt table Historical

Deferredrentliability 280.00 269.00

Otherliabilities 225.00 212.00

MinorityinterestinToysrus.com 9.00 0.00

$2 billion senior secured credit facility (5 years term loan) 700.00

Unsecuredbridgeloan(6yearstermloan) 973.00

Totalliabilities 6291.00 5443.00

STOCKHOLDERS' EQUITY

Commonstock 30.00 30.00 -30.00

Additionalpaid-incapital 407.00 405.00 895.00

R_{etainedearnings 5308.00 5560.00}

Accumulated other comprehensive loss -64.00 -7.00

R_{estrictedstock 0.00 -5.00}

Treasuryshares,atcost -1707.00 -1658.00

Total stockholders equity 3974.00 4325.00

678.00

Total liabilities and stockholders equity 10265.00 9768.00

Balance check $0 $0

CASH FLOW STATEMENTS ($ in millions) 2004 2005 LBO Adjustments

CASH FLOWS FROM OPERATING ACTIVITIES

Netearnings 63.00 252.00

Adjustments to reconcile net earnings to net cash from operating activities:

Depreciationandamortization 368.00 354.00

Amortizationofrestrictedstock 0.00 7.00

Deferredincometaxes 27.00 -40.00

Othernoncashitems 56.00 0.00

Changes in operating assets and liabilities:

Accountsandotherreceivables 62.00 -5.00

Merchandiseinventories 133.00 221.00

Prepaid expenses and other operating assets 28.00 76.00

Accounts payable, accrued expenses, and other liabilities 117.00 -45.00

Optional principal repayment Ending balance

Valuation in year 5_{assuming EBIT}D_{A exit multiple of} 7 2006 2007 2008

EBITDA

Total enterprise value Debt

Equity value - future value 1300

IRR

Valuation in year 5_{assuming EBIT}D_{A exit multiple of} 8.0 EBITDA

Total enterprise value Debt

Equity value - future value 1300

IRR

F

_{rom annual report 2005}

2010 2011

_{Source: http://www.moneycafe.com/library/libor.htm}

0.9844% 0.7809%

2006 2007 2008 2009 2010 2011 7% 7% 7% 7% 7% 7% 68.05% 68.05% 68.05% 68.05% 68.05% 68.05% Avg of 2003, 2004, 2005 = 68.05% 25.75% 25.75% 25.75% 25.75% 25.75% 25.75% Avg of 2003, 2004, 2005 = 25.75% 3.15% 3.15% 3.15% 3.15% 3.15% 3.15% Avg of 2003, 2004, 2005 = 3.15% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% Avg of 2003, 2004, 2005 = 0.20% 0.83% _{0.83% 0.83% 0.83% 0.83% 0.83%}

34.00% 34.00% 34.00% 34.00% 34.00% 34.00% _{Average of 2003, 2004. We ignored 2005 because they lost revenu}

1.33% 1.33% 1.33% 1.33% 1.33% 1.33% _{Average of 2004, 2005 1.33%} 4.87 4.87 4.87 4.87 4.87 4.87 _{Average of 2004, 2005 4.87} 26.24% 26.24% 26.24% 26.24% 26.24% 26.24% _{Average of 2004, 2005 26.24%} 13.50% 13.50% 13.50% 13.50% 13.50% 13.50% _{Average of 2004, 2005 13.50%} 49.27 49.27 49.27 49.27 49.27 49.27 _{Average of 2004, 2005 49.27} 2.37% 2.37% 2.37% 2.37% 2.37% 2.37% _{Average of 2004, 2005 2.37%} 2006 2007 2008 2009 2010 2011 $11,877.00 $12,708.39 $13,597.98 $14,549.84 $15,568.32 $16,658.11 -$8,082.30 -$8,648.06 -$9,253.42 -$9,901.16 -$10,594.24 -$11,335.84 $3,794.70 $4,060.33 $4,344.55 $4,648.67 $4,974.08 $5,322.27 -$3,058.33 -$3,272.41 -$3,501.48 -$3,746.58 -$4,008.84 -$4,289.46 $736.37 $787.92 $843.07 $902.09 $965.24 $1,032.80 -$374.13 -$400.31 -$428.34 -$458.32 -$490.40 -$524.73 -$2.38 -$2.54 -$2.72 -$2.91 -$3.11 -$3.33 $359.87 $385.06 $412.02 $440.86 $471.72 $504.74 -$212.99 -$208.52 -$123.57 -$96.86 -$86.54 -$59.02 $14.64 $0.00 $2.34 $0.00 $0.00 $0.00 $161.52 $176.55 $290.80 $344.00 $385.18 $445.72 $106 60 $116 52 $191 93 $227 04 $254 22 $294 17

from debt table Projections

269.00 269.00 269.00 269.00 269.00 269.00 212.00 212.00 212.00 212.00 212.00 212.00 0.00 0.00 0.00 0.00 0.00 0.00 700.00 700.00 700.00 0.00 0.00 0.00 973.00 973.00 973.00 973.00 0.00 0.00 5671.93 4948.30 5030.01 5117.44 4510.99 3638.09 0.00 0.00 0.00 0.00 0.00 0.00 1300.00 1300.00 1300.00 1300.00 1300.00 1300.00 5560.00 5560.00 5560.00 5560.00 5560.00 5560.00 -7.00 -7.00 -7.00 -7.00 -7.00 -7.00 -5.00 -5.00 -5.00 -5.00 -5.00 -5.00 -1658.00 -1658.00 -1658.00 -1658.00 -1658.00 -1658.00 5190.00 5190.00 5190.00 5190.00 5190.00 5190.00 10861.93 10138.30 10220.01 10307.44 9700.99 8828.09 $266 $3,624 $1,379 $2,539 $256 1120.88327 2006 2007 2008 2009 2010 2011 268.12 293.07 482.72 571.04 639.41 739.89 374.13 400.31 428.34 458.32 490.40 524.73 7.00 7.00 7.00 7.00 7.00 7.00 -40.00 -40.00 -40.00 -40.00 -40.00 -40.00 0.00 0.00 0.00 0.00 0.00 0.00 -5.45 -164.09 -22.96 -24.57 -26.29 -28.13 -237.07 -2032.47 -307.34 -328.86 -351.88 -376.51 0 00 1120 00 0 00 0 00 0 00 0 00

2009

2010

2011

1) a new 2.0 billion secured revolving credit facility, of which 700 million was drawn at

closing, (2) a new $1.9 billion unsecured bridge loan agreement, all of which was drawn at closing, (3) a new secured $1.0 billion European bridge

loan facility and multi-currency revolving credit facilities in an amount of up to £95 million and 145 million, of which $1.0 billion was drawn at

closing, and (4) $800 million of new mortgage loan agreements

2003 2004 2005 2006 Average Median

Build-A-Bear Worksho

27.06%

23.57%

GameStop Corp.