UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended May 4, 2002
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number 1-14987
TOO, INC.
(Exact name of registrant as specified in its charter)
Delaware 31-1333930
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8323 Walton Parkway, New Albany, OH 43054
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (614) 775-3500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days (or such shorter time as the Company became
effective).
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock Outstanding at May 24, 2002
------------ ---------------------------
$.01 Par Value 33,882,633 Shares
TOO, INC.
TABLE OF CONTENTS
Page No.
--------
PART I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Income for the Thirteen Weeks Ended
May 4, 2002 and May 5, 2001 ..................................................................... 3
Consolidated Balance Sheets
May 4, 2002 and February 2, 2002 ................................................................ 4
Consolidated Statements of Cash Flows for the Thirteen Weeks Ended
May 4, 2002 and May 5, 2001 ..................................................................... 5
Notes to Consolidated Financial Statements ........................................................... 6
Report of Independent Accountants .................................................................... 11
Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition ......... 12
PART II. Other Information
Item 1. Legal Proceedings .............................................................................. 16
Item 4. Matters Submitted to a Vote of Security Holders ................................................ 16
Item 6. Exhibits and Reports on Form 8-K ............................................................... 16
Signature ............................................................................................... 17
Index to Exhibits ....................................................................................... 18
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TOO, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in thousands except per share amounts)
Thirteen Weeks Ended
-----------------------
May 4, May 5,
2002 2001
--------- ----------
$ 158,591 $ 136,657
Net sales
Costs of goods sold, buying and
occupancy costs 105,068 91,694
--------- ---------
Gross income 53,523 44,963
General, administrative and store
operating expenses 43,525 38,516
--------- ---------
Operating income 9,998 6,447
Interest expense, net 253 132
--------- ---------
Income before income taxes 9,745 6,315
Provision for income taxes 3,900 2,500
--------- ---------
Net income $ 5,845 $ 3,815
========= =========
Earnings per share:
Basic $ 0.19 $ 0.12
========= =========
Diluted $ 0.18 $ 0.12
========= =========
Weighted average common shares:
Basic 31,425 30,818
========= =========
Diluted 32,535 31,686
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
3
TOO, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands except share amounts)
May 4, February 2,
2002 2002
----------- -----------
(unaudited)
ASSETS
Current Assets:
Cash and equivalents $ 65,590 $ 63,538
Receivables 3,651 2,547
Inventories 34,112 44,537
Store supplies 10,834 10,357
Other 758 2,409
----------- -----------
Total current assets 114,945 123,388
Property and equipment, net 134,881 126,415
Deferred income taxes 14,786 14,786
Other assets 622 988
----------- -----------
TOTAL ASSETS $ 265,234 $ 265,577
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion long-term debt $ 21,250 $ 17,500
Accounts payable 15,628 23,341
Accrued expenses 44,697 39,036
Income taxes payable 11,932 19,696
----------- -----------
Total current liabilities 93,507 99,573
Long-term debt, less current portion 28,750 32,500
Other long-term liabilities 6,168 5,295
Commitments and contingencies
SHAREHOLDERS' EQUITY
Preferred stock, 50 million shares authorized - -
Common stock, $.01 par value, 100 million shares
authorized, 31.5 million and 31.3 million issued and
outstanding at May 4, 2002 and February 2, 2002, 315 313
respectively
Paid in capital 38,091 35,338
Retained earnings 98,403 92,558
----------- -----------
Total shareholders' equity 136,809 128,209
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 265,234 $ 265,577
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
4
TOO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
Thirteen Weeks Ended
----------------------------
May 4, May 5,
2002 2001
------------ ------------
Cash flows from operating activities:
Net income $ 5,845 $ 3,815
Impact of other operating activities on cash flows:
Depreciation and amortization 5,399 4,482
Changes in assets and liabilities:
Inventories 10,425 6,597
Accounts payable and accrued expenses (1,363) (6,503)
Income taxes (7,073) (6,501)
Other assets 1,443 (243)
Other liabilities 873 485
------------ -----------
Net cash provided by operating activities 15,549 2,132
------------- -----------
Investing activities:
Capital expenditures (15,560) (8,210)
------------ -----------
Net cash used for investing activities (15,560) (8,210)
------------ -----------
Financing activities:
Stock options, restricted stock and other equity changes 2,063 1,815
------------ -----------
Net cash provided by financing activities 2,063 1,815
------------ -----------
Net increase (decrease) in cash and equivalents 2,052 (4,263)
Cash and equivalents, beginning of period 63,538 54,788
------------ -----------
Cash and equivalents, end of period $ 65,590 $ 50,525
============ ===========
The accompanying notes are an integral part of these consolidated financial
statements.
5
TOO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. BASIS OF PRESENTATION
Too, Inc. (referred to herein as "Too" or "the Company") is the operator of
two specialty retailing businesses, Limited Too and mishmash. Limited Too
sells apparel, underwear, sleepwear, swimwear, lifestyle and personal care
products for fashion-aware, trend-setting young girls ages seven to
fourteen years. mishmash, launched by the Company in late September 2001,
sells cosmetics, sportswear, intimate apparel and footwear to young women
ages fourteen to nineteen. The assortment also includes accessories,
jewelry, room decor furnishings and lifestyle products. The consolidated
financial statements include the accounts of Too, Inc. and its wholly owned
subsidiaries and reflect the Company's assets, liabilities, results of
operations and cash flows on a historical cost basis.
The accompanying unaudited interim consolidated financial statements as of
May 4, 2002 and for the thirteen week periods ended May 4, 2002 and May 5,
2001, are presented to comply with the rules and regulations of the
Securities and Exchange Commission. Accordingly, these consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto contained in the Company's 2001
Annual Report on Form 10-K. In the opinion of management, the accompanying
interim consolidated financial statements reflect all adjustments (which
are of a normal, recurring nature) necessary to present fairly the
financial position, results of operations and cash flows for the interim
periods, but are not necessarily indicative of the results of operations
for a full fiscal year.
The consolidated financial statements as of May 4, 2002, and for the
thirteen weeks ended May 4, 2002 and May 5, 2001 included herein have been
reviewed by the independent public accounting firm of
PricewaterhouseCoopers LLP and the report of such firm follows the notes to
consolidated financial statements. PricewaterhouseCoopers LLP is not
subject to the liability provisions of Section 11 of the Securities Act of
1933 for its report on the consolidated financial statements because that
report is not a "report" within the meaning of Sections 7 and 11 of that
Act.
2. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the weighted
average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution that could occur if
stock options or restricted stock were converted to common stock using the
treasury stock method.
6
The following table shows the amounts used in the computation of basic and
diluted earnings per share (in thousands):
Thirteen Weeks Ended
--------------------
May 4, May 5,
2002 2001
------- -------
Net income $ 5,845 $ 3,815
======= =======
Weighted average common shares - basic 31,425 30,818
Dilutive effect of stock options
and restricted stock 1,110 868
------- -------
Weighted average common shares - diluted 32,535 31,686
======= =======
Due to the options' price exceeding the average market price of the common
shares for the reporting periods, certain options were excluded from the
calculation of net income per diluted share. Options to purchase 5,000 and
158,000 common shares were not included in the computation of net income
per diluted share for the thirteen weeks ended May 4, 2002 and May 5, 2001,
respectively.
3. INVENTORIES
The fiscal year of the Company is comprised of two principal selling
seasons: Spring (the first and second quarters) and Fall (the third and
fourth quarters). Inventories are principally valued at the lower of
average cost or market, on a first-in, first-out basis utilizing the retail
method. Inventory valuation at the end of the first and third quarters
reflects adjustments for inventory markdowns and shrinkage estimates for
the total selling season.
4. PROPERTY AND EQUIPMENT, NET
Property and equipment, at cost, consisted of (in thousands):
May 4, February 2,
2002 2002
--------- -----------
Land $ 7,897 $ 7,797
Building 20,841 -
Furniture, fixtures and equipment 123,337 105,554
Leasehold improvements 41,879 45,408
Construction-in-progress 20,520 49,069
--------- -----------
Total 214,474 207,828
Less: accumulated depreciation and amortization (79,593) (81,413)
--------- -----------
Property and equipment, net $ 134,881 $ 126,415
========= ===========
7
5. RELATIONSHIP WITH THE LIMITED
In connection with the August 23, 1999 Spin-off, the Company entered into a
service agreement with Limited Logistics Services (formerly known as
Limited Distribution Services), a wholly owned subsidiary of The Limited,
to provide distribution services to us covering flow of merchandise from
factory to our stores for up to three years after the Spin-off. Most of the
merchandise and related materials for the Company's stores were shipped to
a distribution center owned by The Limited in Columbus, Ohio, where the
merchandise was received, inspected, allocated and packed for shipment to
stores. Under the service agreement, The Limited distributed merchandise
and related materials using common and contract carriers to the Company's
stores. Inbound freight was charged to Too based upon actual receipts and
related charges, while outbound freight was charged based on a percentage
of cartons shipped. Beginning in February 2002, the Company began operating
its own distribution center.
Our main office was owned by Distribution Land Corp., a wholly owned
subsidiary of the Limited, and leased to us with a lease term expiring in
August 2002. In April 2002, the Company completed construction of its new
home office.
Our largest apparel supplier has been Mast Industries, Inc., a wholly owned
subsidiary of The Limited. Mast Industries supplied approximately 30% of
the apparel that we purchased in 2001. We believe that all transactions
that we have entered into with Mast Industries have been on terms that
would have been obtained on an arm's length basis since we treat them as if
they were a third party. We were not, and will not be, obligated to
continue to source products through Mast Industries.
Amounts payable to The Limited, including merchandise payables to Mast
Industries, approximated $5.6 million at May 4, 2002.
6. CREDIT FACILITY
During August 1999, the Company entered into a five-year $100 million
credit agreement (the "Credit Facility") with a syndicate of banks. The
Credit Facility is collateralized by virtually all assets of the Company
and is comprised of a $50 million five-year term loan and a $50 million
revolving loan commitment. The entire amount of the term portion was drawn
in order to fund a $50 million dividend to The Limited and $14 million was
drawn under the revolving loan commitment principally to repay a portion of
working capital advances made by the Limited prior to the Spin-off.
The $50 million revolving loan commitment is available to fund working
capital requirements and for general corporate purposes. Interest on
borrowings under the Credit Facility is based on matrix pricing applied to
either the London Interbank Offered Rate or Prime, as defined in the
agreement. Payments of principal under the term loan are due at various
dates from July 2002 to August 2004. A commitment fee based on matrix
pricing is charged on the unused portion of the revolving loan commitment.
The commitment fee is up to 1/2 of 1% of the unused revolving credit
commitment per annum. Under the terms of the Credit Facility, the Company
is required to comply with certain covenants including financial ratios.
The Credit Facility limits the Company from incurring certain additional
indebtedness and restricts substantial asset sales, capital expenditures
above approved limits and cash dividends. The Company is in compliance with
all applicable terms of the Credit Facility. As of May 4, 2002, there were
no amounts outstanding under the revolving portion of the Credit Facility.
Current maturities of long-term debt for each of the next three fiscal
years are $17.5 million in 2002, $20.0 million in 2003, and $12.5 million
in 2004.
8
Interest expense, including the amortization of financing fees, amounted to
$1,038,000 for the quarter ending May 4, 2002. Interest expense was
partially offset by interest income of $785,000 for the quarter. Interest
expense and interest income amounted to $1,052,000 and $920,000,
respectively, for the quarter ending May 5, 2001.
7. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Company adopted EITF Issue No. 00-14, "Accounting for Certain Sales
Incentives," during the first quarter of 2002. EITF 00-14 addresses the
accounting for, and classification of, various sales incentives. The
adoption of this EITF Issue did not have a material impact on the Company's
consolidated financial statements.
Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting
for Asset Retirement Obligations," will be effective in the first quarter
of 2003. The standard requires entities to record the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred. When the liability is initially recorded, the entity capitalizes
the corresponding estimated retirement cost by increasing the carrying
amount of the related long-lived asset. Over time, the liability is
accreted to its present value each period, and the capitalized cost is
depreciated over the useful life of the related asset. Upon settlement of
the liability, an entity either settles the obligation for its recorded
amount or incurs a gain or loss upon settlement. Because costs associated
with exiting leased properties at the end of the lease terms are minimal,
the Company believes that when the statement is adopted, it will not have a
significant effect on the Company's results of operations or its financial
position.
The Company adopted SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," during the first quarter of 2002. SFAS No.
144 supersedes SFAS 121 and applies to all long-lived assets (including
discontinued operations) and consequently amends Accounting Principles
Board Opinion No. 30 (APB 30), "Reporting Results of Operations Reporting
the Effects of Disposal of a Segment of a Business." SFAS 144 develops one
accounting model (based on the model in SFAS 121) for long-lived assets
that are to be disposed of by sale. This model requires that long-lived
assets that are to be disposed of by sale be measured at the lower of book
value or fair value less cost to sell. Additionally, SFAS 144 expands the
scope of discontinued operations to include all components of an entity
with operations that (1) can be distinguished from the rest of the entity
and (2) will be eliminated from the ongoing operations of the entity in a
disposal transaction. The adoption of this SFAS did not have a material
impact on the Company's consolidated financial statements.
9
In April 2002, the Financial Accounting Standards Board (FASB) issued SFAS
No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of
FASB Statement No. 13, and Technical Corrections." SFAS 145 eliminates FASB
Statement No. 4, "Reporting Gains and Losses from Extinguishment of Debt,"
and an amendment of that Statement, SFAS No. 64, "Extinguishments of Debt
Made to Satisfy Sinking-Fund Requirements." As a result, gains and losses
from extinguishment of debt should be classified as extraordinary items
only if they meet the criteria in Accounting Principles Board (APB) Opinion
No. 30. SFAS 145 amends SFAS No. 13, "Accounting for Leases," to eliminate
an inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications
that have economic effects that are similar to sale-leaseback transactions.
SFAS 145 also amends other existing authoritative pronouncements to make
various technical corrections, clarify meanings, or describe their
applicability under changed conditions. The provisions of this Statement
related to the rescission of Statement 4 shall be applied in fiscal years
beginning after May 15, 2002. The provisions of this Statement related to
Statement 13 shall be effective for transactions occurring after May 15,
2002. All other provisions of this Statement shall be effective for
financial statements issued on or after May 15, 2002. The Company does not
expect the adoption of SFAS 145 to have a significant impact on the results
of operations, cash flows or the financial position of the Company.
8. COMMON STOCK FINANCING AND SUBSEQUENT EVENT
On April 29, 2002, the Company filed a registration statement on Form S-3,
File Number 333-87188, with the Securities and Exchange Commission to sell
up to 2.8 million shares of its common stock.
On May 24, 2002, the Company received $73.9 million net proceeds from the
sale of 2.4 million shares of its common stock. On that day, the Company
paid off the entire $50 million term loan due under the Credit Facility and
the remaining proceeds from the sale of common stock will be used for
general corporate purposes. The $50 million revolving loan commitment under
the Credit Facility remains in effect and is available to the Company for
future business purposes.
10
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Too, Inc.:
We have reviewed the accompanying consolidated balance sheet of Too, Inc. and
its subsidiaries (the "Company") as of May 4, 2002, and the related consolidated
statements of income and cash flows for each of the thirteen-week periods ended
May 4, 2002 and May 5, 2001. These financial statements are the responsibility
of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated interim financial statements for them
to be in conformity with accounting principles generally accepted in the United
States of America.
We previously audited in accordance with auditing standards generally accepted
in the United States of America, the consolidated balance sheet as of February
2, 2002, and the related consolidated statements of income, shareholders'
equity, and of cash flows for the year then ended (not presented herein), and in
our report dated February 20, 2002 we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying consolidated balance sheet information as of February 2, 2002
is fairly stated in all material respects in relation to the consolidated
balance sheet from which it has been derived.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Columbus, Ohio
May 13, 2002
11
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations
Net sales for the thirteen weeks ended May 4, 2002 were $158.6 million, an
increase of 16% from $136.7 million for the comparable period of 2001. Gross
income increased 19% to $53.5 million from $45.0 million in 2001 and operating
income rose 56% to $10.0 million from $6.4 million in 2001. Net income increased
53% to $5.8 million from $3.8 million in 2001. Diluted earnings per share
increased 50% to $.18, versus $.12 in 2001.
FINANCIAL SUMMARY
The following summarized financial and statistical data compares the thirteen
week period ended May 4, 2002, to the comparable 2001 period:
Thirteen Weeks Ended
------------------------------------------------
Percent
May 4, 2002 May 5, 2001 Change
------------------------------------------------
Net sales (millions) $ 158.6 $ 136.7 16%
Comparable store sales performance /(1)/ 4% (2)%
Retail sales per average square foot/(2)/ $ 82 /(3)/ $ 80 3%
Retail gross square feet at end of
quarter (thousands) 1,929 /(3)/ 1,693 14%
Stores with "Girl Power" format 230 164
Percentage of Limited Too stores in
"Girl Power" format 49% 40%
Number of Stores:
-----------------
Limited Too:
Beginning of period 459 406
Opened 13 8
Closed (1) (1)
-----------------------------------
End of period 471 413
===================================
mishmash stores 9 -
===================================
/(1)/ A store is included in our comparable store sales calculation once it has
completed 52 weeks of operation. Further, stores that have changed more
than 20% in square feet are treated as new stores for purposes of this
calculation. Fiscal 2001 comparable store sales are reported on a
calendar-shifted basis.
/(2)/ Retail sales per average square foot is the result of dividing net sales
for the fiscal quarter by average gross square feet, which reflects the
impact of opening and closing stores throughout the quarter.
/(3)/ Amounts exclude the 9 mishmash stores.
12
Net Sales
Net sales for the first quarter of 2002 increased 16% to $158.6 million from
$136.7 million in 2001. Comparable store sales increased 4% for the first
quarter of 2002 compared to a 2% decrease during first quarter of 2001. Net
sales benefited from a 14% increase in square footage growth over last year.
The best performing merchandise categories during the first quarter were active
wear led by active shorts, cut and sewn casual tops, sweaters and jeans wear.
Gross Income
Gross income, expressed as a percentage of net sales, was 33.7% for the first
quarter of 2002, an increase of 80 basis points from a gross income rate of
32.9% for the first quarter of 2001. This rate increase was due to higher
initial mark-ups and a lower promotional markdown rate, which more than offset
the increased buying and occupancy rate due to increased catalog circulation.
General, Administrative and Store Operating Expenses
General, administrative and store operating expense, expressed as a percentage
of net sales, was 27.4% for the first quarter of 2002, a decrease of 80 basis
points from a rate of 28.2% for the first quarter of 2001. The favorable
decrease in rate was due to lower distribution center and marketing expenses,
along with a decrease in the store payroll rate.
Operating Income
Operating income, expressed as a percentage of net sales, was 6.3% in the first
quarter of 2002, an increase of 160 basis points from 4.7% for the same period
in 2001. The increase in operating income, expressed as a percentage of net
sales, was due to higher merchandise margins and lower selling, general and
administrative expenses.
Income Taxes
Income tax expense, provided at an approximate rate of 40%, amounted to $3.9
million and $2.5 million for the quarters ending May 4, 2002 and May 5, 2001,
respectively.
FINANCIAL CONDITION
Liquidity and Capital Resources
Cash provided from operating activities provides the resources to support
operations, including projected growth, seasonal working capital requirements
and capital expenditures.
Net cash provided by operating activities amounted to $15.5 million for the
thirteen weeks ended May 4, 2002 versus $2.1 million for the same period in
2001. The increase in net cash provided by operating activities versus the
comparable period in 2001 was due to an increase in net income and depreciation
expense, lower inventory levels and improved leveraging of accounts payable.
Investing activities represented capital expenditures, which were primarily for
new and remodeled stores, as well as progress payments on the construction of
our new home office and distribution center.
Financing activities principally represented proceeds from employee stock option
exercises and the issuance of restricted stock.
13
A summary of our working capital position and capitalization follows
(thousands).
May 4, February 2,
2002 2002
--------- -----------
Working capital, including current portion of
long-term debt of $21,250 and $17,500 at
May 4, 2002 and February 2, 2002,
respectively $ 21,438 $ 23,815
========= ===========
Capitalization:
Long-term debt 28,750 32,500
Shareholders' equity 136,809 128,209
--------- -----------
Total capitalization $ 165,559 $ 160,709
========= ===========
Amounts authorized under revolving portion
of credit facility $ 50,000 $ 50,000
========= ===========
In August 1999, we entered into a five-year, $100 million collateralized Credit
Facility. The Credit Facility consists of a $50 million five-year term loan and
a $50 million, five-year annual revolving credit commitment. The Credit
Facility's interest rates, which reflect matrix pricing, are based on the London
Interbank Offered Rate or Prime plus a spread as defined in the agreement. The
term loan is interest only until the end of the third year at which time the
amortization of the outstanding principle balance will begin. The Credit
Facility contains customary representations and warranties as well as certain
affirmative, negative and financial covenants.
No amounts were borrowed against the $50 million revolving credit commitment
during the thirteen weeks ended May 4, 2002 and May 5, 2001.
On May 24, 2002, the Company received net proceeds from the sale of 2.4 million
shares of its common stock of $73.9 million. On that day, the Company paid off
the entire $50 million term loan due under the Credit Facility. The $50 million
revolving loan commitment under the Credit Facility remains in effect and is
available to the Company for future business purposes.
Capital Expenditures
Capital expenditures totaled $15.6 million for the thirteen weeks ended May 4,
2002 compared to $8.2 million for the comparable period of 2001. 2002 capital
expenditures included $3.3 million for new and remodeled stores, $4.7 million
for the new distribution center and $7.6 million for the new home office and
other items. We anticipate spending approximately $45 to $50 million in 2002 for
capital expenditures including the construction of 50 to 55 new Limited Too
stores, at least four new mishmash stores and the expansion of approximately ten
stores identified for remodeling. Our store expansion and remodel program should
add 210,000 to 220,000 gross square feet during 2002, representing an 11% to
12% increase over year-end 2001. We also anticipate capital expenditures between
$21 million and $24 million principally related to the completion of a new
distribution center and home office. The Company expects that capital
expenditures will be funded principally by net cash provided by operating
activities.
14
Recently Issued Accounting Pronouncements
The Company adopted EITF Issue No. 00-14, "Accounting for Certain Sales
Incentives," during the first quarter of 2002. EITF 00-14 addresses the
accounting for, and classification of, various sales incentives. The adoption of
this EITF Issue did not have a material impact on the Company's consolidated
financial statements.
Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for
Asset Retirement Obligations," will be effective in the first quarter of 2003.
The standard requires entities to record the fair value of a liability for an
asset retirement obligation in the period in which it is incurred. When the
liability is initially recorded, the entity capitalizes the corresponding
estimated retirement cost by increasing the carrying amount of the related
long-lived asset. Over time, the liability is accreted to its present value each
period, and the capitalized cost is depreciated over the useful life of the
related asset. Upon settlement of the liability, an entity either settles the
obligation for its recorded amount or incurs a gain or loss upon settlement.
Because costs associated with exiting leased properties at the end of the lease
terms are minimal, the Company believes that when the statement is adopted, it
will not have a significant effect on the Company's results of operations or its
financial position.
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets," during
the first quarter of 2002. SFAS No. 144 supercedes SFAS 121 and applies to all
long-lived assets (including discontinued operations) and consequently amends
Accounting Principles Board Opinion No. 30 (APB 30), "Reporting Results of
Operations Reporting the Effects of Disposal of a Segment of a Business." SFAS
144 develops one accounting model (based on the model in SFAS 121) for
long-lived assets that are to be disposed of by sale. This model requires that
long-lived assets that are to be disposed of by sale be measured at the lower of
book value or fair value less cost to sell. Additionally, SFAS 144 expands the
scope of discontinued operations to include all components of an entity with
operations that (1) can be distinguished from the rest of the entity and (2)
will be eliminated from the ongoing operations of the entity in a disposal
transaction. The adoption of this SFAS did not have a material impact on the
Company's consolidated financial statements.
In April 2002, the Financial Accounting Standards Board (FASB) issued SFAS No.
145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections." SFAS 145 eliminates FASB Statement
No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and an
amendment of that Statement, SFAS No. 64, "Extinguishments of Debt Made to
Satisfy Sinking-Fund Requirements." As a result, gains and losses from
extinguishment of debt should be classified as extraordinary items only if they
meet the criteria in Accounting Principles Board (APB) Opinion No. 30. SFAS 145
amends SFAS No. 13, "Accounting for Leases," to eliminate an inconsistency
between the required accounting for sale-leaseback transactions and the required
accounting for certain lease modifications that have economic effects that are
similar to sale-leaseback transactions. SFAS 145 also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. The
provisions of this Statement related to the rescission of Statement 4 shall be
applied in fiscal years beginning after May 15, 2002. The provisions of this
Statement related to Statement 13 shall be effective for transactions occurring
after May 15, 2002. All other provisions of this Statement shall be effective
for financial statements issued on or after May 15, 2002. The Company does not
expect the adoption of SFAS 145 to have a significant impact on the results of
operations, cash flows or the financial position of the Company.
15
Safe Harbor Statement Under The Private Securities Litigation Reform Act of 1995
The Company cautions that any forward-looking statements (as such term is
defined in the Private Securities Litigation Reform Act of 1995) contained in
this Management's Discussion and Analysis or made by management of the Company
involve risks and uncertainties and are subject to change based on various
important factors, many of which may be beyond the Company's control.
Forward-looking statements are indicated by words such as "anticipate,"
"estimate," "expect," "intend," "risk," "could," "may," "will," "pro forma,"
"likely," "possible," "potential," and similar words and phrases and the
negative forms and variations of these words and phrases, and include statements
in this Management's Discussion and Analysis relating to the annual effective
tax rate, anticipated capital expenditures in 2002 for new stores, the
remodeling or expansion of existing stores, and the construction of the new
distribution center and home office facilities, and the related funding thereof.
The following factors, among others, in some cases have affected, and in the
future could affect, the Company's financial performance and actual results and
could cause future performance and financial results to differ materially from
those expressed or implied in any forward-looking statements included in this
Management's Discussion and Analysis or otherwise made by management: changes in
consumer spending patterns, consumer preferences and overall economic
conditions; the impact of competition and pricing; changes in weather patterns;
currency and exchange risks; changes in existing or potential trade
restrictions, duties, tariffs or quotas; changes in political or financial
stability; changes in postal rates and charges and paper and printing costs;
availability of suitable store locations at appropriate terms; ability to
develop new merchandise; ability to hire and train associates; and/or other risk
factors that may be described in the Safe Harbor Statement and Business Risks
section of the Company's Form 10-K, filed April 29, 2002, as well as other
filings with the Securities and Exchange Commission. Future economic and
industry trends that could potentially impact revenue and profitability are
difficult to predict. Therefore, there can be no assurance that the
forward-looking statements included herein will prove to be accurate. In light
of the significant uncertainties in the forward-looking statements included
herein, the inclusion of such information should not be regarded a
representation by the Company, or any other person, that the objectives of the
Company will be achieved. The forward-looking statements made herein are based
on information presently available to the management of the Company. The Company
assumes no obligation to publicly update or revise its forward-looking
statements even if experience or future changes make it clear that any projected
results expressed or implied therein will not be realized.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 4. Matters Submitted to a Vote of Security Holders
The 2002 annual meeting of stockholders was held on Tuesday, May 21, 2002, at
9:00 a.m. Eastern Time at our corporate offices, located at 8323 Walton Parkway,
New Albany, Ohio.
ELECTION OF DIRECTORS FOR AGAINST WITHHELD RESULTS
------------------------ ----------- ----------- ------------- ---------
Philip E. Mallott 28,456,414 - 1,050,039 Elected
Michael W. Rayden 21,705,829 - 7,800,624 Elected
Item 6. Exhibits
(a) Exhibits
15 Letter re: Unaudited Interim Financial Information to
Securities and Exchange Commission re: Incorporation of Report
of Independent Accountants.
99.2 Press release: Too, Inc. announces completion of follow-on stock
offering.
(b) Reports on Form 8-K
On May 13, 2002, the Company filed a current report on Form 8-K that
announced the Company's first quarter results.
16
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TOO, INC.
(Registrant)
By /s/ KENT A. KLEEBERGER
---------------------------------
Kent A. Kleeberger,
Executive Vice President - Chief Financial
Officer,
Logistics and Systems
Secretary and Treasurer
(duly authorized officer and Principal
Financial and Accounting Officer)
Date: May 29, 2002
17
EXHIBIT INDEX
Exhibit
No. Document
--- --------
15 Letter re: Unaudited Interim Financial Information to Securities and
Exchange Commission re: Incorporation of Report of Independent
Accountants.
99.2 Press release: Too, Inc. announces completion of follow-on stock
offering.
18